Friday, 19 March 2010

Explanation of Administration and Administrative Receivership

When a company or partnership gets into financial trouble an administrator or administrative receiver may be appointed.

Administration
The role of an administrator is to get the company out of trouble and trading again if possible.

Administrators can be appointed to a company that is unable, or is likely to become unable, to pay its debts.

They can be appointed by any of the following:
- the courts - on application from a creditor, directors or partners
- the holder of a qualifying floating charge over the assets of the business
- the company or its directors

An administrator's primary goal is to rescue the company as a going concern. If this isn't possible, the administrator will try to get a better result for the creditors than would be possible if the company was wound up. If neither of these is possible, the administrator will sell the company's property to make at least a partial payment to one or more secured or preferential creditors, such as employees or the bank.
Administration can also apply to partnerships.

Administrative Receivership
When a company borrows money, the lender is usually given some security over the company's assets to guarantee payment. If the company fails to keep the terms of the loan or encounters financial difficulties, the lender may be entitled to appoint an administrative receiver. An administrative receiver is an insolvency practitioner who has control of the whole, or a substantial part, of the company's property and wide powers over the business.

The administrative receiver is mainly concerned with getting back the money owed to the secured creditor. The administrative receiver may sell the assets piecemeal, or sell the whole business as a going concern to pay off the secured creditor, and the costs of the receivership.

Since 15 September 2003 the right to appoint an administrative receiver is generally limited to debenture holders whose charge existed at that date.

Credit to Business Link

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