page_title: United Kingdom insolvency law
section_title: Administration
hierarchical_section_title: United Kingdom insolvency law / Procedures / Administration
caption_attribution_description: English: Portsmouth fans at Wembley Stadium for the 2007-08 FA Cup semi-final with Cardiff City FC
context_page_description: United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. While UK bankruptcy law concerns the rules for natural persons, the term insolvency is generally used for companies formed under the Companies Act 2006. "Insolvency" means being unable to pay debts. Since the Cork Report of 1982, the modern policy of UK insolvency law has been to attempt to rescue a company that is in difficulty, to minimise losses and fairly distribute the burdens between the community, employees, creditors and other stakeholders that result from enterprise failure. If a company cannot be saved it is "liquidated", so that the assets are sold off to repay creditors according to their priority. The main sources of law include the Insolvency Act 1986, the Insolvency Rules 1986, the Company Directors Disqualification Act 1986, the Employment Rights Act 1996 Part XII, the Insolvency Regulation 1346/2000 and case law. Numerous other Acts, statutory instruments and cases relating to labour, banking, property and conflicts of laws also shape the subject.
  UK law grants the greatest protection to banks or other parties that contract for a security interest.
context_section_description: After the Cork Report in 1982 a major new objective for UK insolvency law became creating a "rescue culture" for business, as well as ensuring transparency, accountability and collectivity. The hallmark of the rescue culture is the administration procedure in the Insolvency Act 1986, Schedule B1 as updated by the Enterprise Act 2002. Under Schedule B1, paragraph 3 sets the primary objective of the administrator as "rescuing the company as a going concern", or if not usually selling the business, and if this is not possible realising the property to distribute to creditors. Once an administrator is appointed, she will replace the directors. Under paragraph 40 all creditors are precluded by a statutory moratorium from bringing enforcement procedures to recover their debts. This even includes a bar on secured creditors taking and or selling assets subject to security, unless they get the court's permission. The moratorium is fundamental to keeping the business' assets intact and giving the company a "breathing space" for the purpose of a restructure. It also extends to a moratorium on the enforcement of criminal proceedings. So in Environmental Agency v Clark the Court of Appeal held that the Environment Agency needed court approval to bring a prosecution against a polluting company, though in the circumstances leave was granted. Guidance for when leave should be given by the court was elaborated in Re Atlantic Computer Systems plc (No 1). In this case, the company in administration had sublet computers that were owned by a set of banks who wanted to repossess them. Nicholls LJ held leave to collect assets should be given if it would not impede the administration's purpose, but strong weight should be given to the interests of the holder of property rights. Here, the banks were given permission because the costs to the banks were disproportionate to the benefit to the company. The moratorium lasts for one year, but can be extended with the administration.
  The duties of an administrator in Schedule B1, paragraph 3 are theoretically meant to be exercised for the benefit of the creditors as a whole. However the administrator's duties on paper lie in tension with how, and by whom, an administrator is appointed. The holder of a floating charge, which covers substantially all of a company's property (typically the company's bank), has an almost absolute right to select the administrator. Under Schedule B1, paragraph 14, it may appoint the administrator directly, and can do so out of court. The company need not be technically insolvent, so long as the terms of the floating charge allow appointment. The directors or the company may also appoint an administrator out of court, but must give five days' notice to any floating charge holder, who may at any point intervene and install his own preferred candidate. The court can, in law, refuse the floating charge holder's choice of administrator because of the 'particular circumstances of the case', though this will be rare. Typically banks wish to avoid the spotlight and any effect on their reputation, and so they suggest that company directors appoint the administrator from their own list. Other creditors may also apply to court for an administrator to be appointed, although once again, the floating charge holder may intervene. In this case, the court will grant the petition for appointment of an administrator only if, first, the company "is or is likely to become unable to pay its debts" (identical to IA 1986 section 123) and "the administration order is reasonably likely to achieve the purpose of administration." In Re Harris Simons Construction Ltd Hoffmann J held that 'likely to achieve the purpose of administration' meant a test lower than balance of probabilities, and more like whether there was a 'real prospect' of success or a 'good arguable case' for it. So here the company was granted an administration order, which led to its major creditor granting funding to continue four building contracts.
  Once in place, the first task of an administrator is to make proposals to achieve th
caption: Portsmouth F.C., despite winning the FA Cup in 2008 and reaching the final in 2010, entered administration twice in 2010 and 2011.
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