What Happens When a Company Goes Into Administration?

When a company "goes into administration", control passes from its directors to a licensed insolvency practitioner called an administrator, and a legal shield goes up around the business to give it a chance of survival. Here is what that means in practice for everyone involved.

What administration is for

Administration is a formal insolvency procedure under Schedule B1 of the Insolvency Act 1986. The administrator must pursue a statutory list of objectives, in order:

1. Rescue the company as a going concern; or if that isn't reasonably possible,
2. achieve a better result for creditors than an immediate winding-up; or failing that,
3. realise property to pay secured or preferential creditors.

The first objective — saving the actual company — is the ideal. In reality, the business (its brand, shops, contracts and staff) is often rescued through a sale even when the original legal entity is not.

The moratorium: an instant legal shield

The moment a company enters administration, a moratorium takes effect. This stops creditors from:

• starting or continuing court claims or enforcement,
• repossessing goods supplied on hire-purchase or retention of title without permission,
• presenting or progressing a winding-up petition.

The moratorium is what makes rescue possible — it freezes the pressure so the administrator can assess options without the company being torn apart by individual creditors.

Who runs the company now?

The administrator does. They are an officer of the court and act for all creditors, not just the bank or whoever appointed them. The directors remain in office but lose their powers to manage the company. In practice, directors are often asked to help the administrator understand the business.

What happens to employees?

This depends on whether the business keeps trading:

• If the administrator continues trading or sells the business as a going concern, many employees keep their jobs — and their contracts can transfer to a buyer under the TUPE regulations.
• If parts of the business are shut, affected staff are made redundant and can claim statutory redundancy pay, unpaid wages, holiday and notice from the government's Redundancy Payments Service.

What happens to customers, orders and gift cards?

There is no single rule — it is the administrator's commercial decision. Trading often continues in the short term, so shops stay open and orders are fulfilled. But administrators may stop honouring gift cards, deposits or warranties, or accept them only in part, because those holders rank as unsecured creditors. Anyone with an outstanding deposit should submit a claim.

What happens to suppliers and creditors?

• Secured creditors (typically a bank with a charge) rank first on their security.
• Suppliers owed money before administration become unsecured creditors and usually recover only a fraction, if anything.
• Suppliers with valid retention of title clauses may be able to reclaim unsold, identifiable goods.
• "Essential supplies" (utilities, IT, telecoms) generally cannot simply cut the company off because it entered administration.

How long does administration last?

An administration is designed to be temporary — it automatically ends after one year, though it can be extended with consent or by the court. It typically concludes in one of these ways:

• the company is rescued and handed back;
• the business is sold (sometimes via a pre-pack) and the shell moves into liquidation;
• the company moves into a Creditors' Voluntary Liquidation to distribute remaining funds;
• there is a return to the directors or a dissolution.

Administration vs liquidation

If you are trying to work out whether a company will survive, the label matters — see our guide to the difference between administration and liquidation. Administration is about a future; liquidation is about closure.

Follow administrations in real time

Insolvency List indexes every administration notice as it is published. Browse the live feed, or watch a specific industry or region to see which companies have just entered administration.

*This article is general information, not legal or financial advice. If you are a director, creditor or employee affected by an administration, seek advice specific to your circumstances.*