Administration will be used if a company is in an insolvent position. However there is a belief that with changes to the structure and the way the business is operated, it can be saved. In so doing, the aim is to generate a better return for creditors than if the company was simply liquidated.

Once an Administrator is appointed, they will review the status of the business. Their primary objective is to decide on the solution that will give the best opportunity for the company’s creditors to be repaid.

For this reason, there could be various different outcomes of an administration ranging from asset sale to closure.

Significant operational changes may be required

The administrator may recommend that the business should continue to trade but significant operational changes are required and perhaps some assets sold. Alternatively the recommendation could be that the company enters into a company voluntary arrangement (CVA).

If after a thorough review, the administrator believes that it will result in the best return for creditors, they could recommend that the company be liquidated. Their objective will then be to organise the company’s assets thus allowing a better price for them before the liquidation.
 
If it is believed that the company or any part of it is unlikely to be saved even after operational changes, then administration is unlikely to be used. Instead, the owners of the business would perhaps be better to consider closing the business using a creditors voluntary liquidation.