Administration Order

Administration Order Judgment Debtor Insolvency Act 1986 Bankruptcy Liquidation Administrator Financial Difficulties Debt Repayment
An order made by a court for the administration of the estate of a judgment debtor or a company in financial distress, focused on debt repayment and business survival.
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Overview of Administration Order

An administration order is a judgment by a court that deals with the financial affairs of a debtor or a company in financial trouble. There are two primary contexts in which administration orders are employed: individual debt scenarios and corporate insolvency.

Individual Debt Administration Order

Definition: An administration order issued in the context of individual debt is a county court order for the administration of the estate of a judgment debtor. The order typically requires the debtor to repay their debts in installments. While the order is in place and payments are being made as ordered, creditors cannot independently enforce their claims without court permission.

Purpose: These orders are most often used when a debtor has multiple debts but is able to avoid bankruptcy. It provides a structured repayment plan by:

  1. Compelling the debtor to make regular payments towards their outstanding debts.
  2. Restricting creditors from taking separate legal actions to recover debts without the court’s leave.

Corporate Administration Order

Definition: A corporate administration order, as defined under the Insolvency Act 1986, is a court order made in respect to a company experiencing financial difficulties. The aim is either to secure its survival as a going concern or to attain a more beneficial realization of its assets compared to potential liquidation.

While under administration:

  1. The operation of the company is managed by an appointed administrator.
  2. The company is protected from legal actions by creditors aimed at winding up the business.

Since 2003, out-of-court administrations have also been possible. This process allows the company itself, its directors, or a floating charge holder to appoint an administrator directly, aiming for the same goals as a court-appointed administration.

Examples of Administration Orders

  1. John Doe’s Debts: John has accumulated several debts, including credit card payments and loans. Unable to pay these debts on time, John applies for an administration order through the county court. The court orders John to pay a set monthly instalment to gradually clear his debts while preventing individual creditors from taking action against him.

  2. XYZ Manufacturing Ltd: Facing severe cash flow problems, XYZ Manufacturing Ltd risks bankruptcy. The directors decide to apply for an administration order under the Insolvency Act 1986, appointing an administrator whose goal is to stabilize the company’s financial status or achieve a favorable sale of its assets. During this period, the company is protected from creditors’ legal actions.

Frequently Asked Questions

Q1: Who can apply for an administration order?

  • A1: For individuals, typically debtors who have received at least one court judgment against them. For companies, directors, creditors, or a floating charge holder can apply.

Q2: How are payments structured under an administration order for individuals?

  • A2: Payments are structured in regular instalments as determined feasible by the court based on the debtor’s financial situation.

Q3: What protection does a company gain under an administration order?

  • A3: The company receives protection from any legal actions by creditors looking to liquidate assets, providing a breathing space to restructure or stabilize finances.

Q4: What is a floating charge in the context of out-of-court administration?

  • A4: A floating charge is a type of security interest over a fund of changing assets (like inventory) of a company, enabling the holder to appoint an administrator if the company encounters financial issues.

Q5: Can an administration order be appealed?

  • A5: Yes, appeals can be made to higher courts under certain circumstances, particularly if there’s a belief of procedural error or other valid grounds.
  • Bankruptcy: A legal proceeding involving a person or business that is unable to repay their outstanding debts.
  • Liquidation: The process of bringing a business to an end and distributing its assets to claimants.
  • Administrator: A person appointed to manage and oversee the reorganization or liquidation of a company.
  • Judgment Debtor: An individual or entity against whom a court judgment for a sum of money is granted and yet unpaid.

Online References

  1. Insolvency Service - Administration
  2. Government Website on Individual Administration Orders

Suggested Books for Further Studies

  1. “Corporate Insolvency Law: Perspectives and Principles” by Vanessa Finch
  2. “Insolvency and Financial Law: Theory and Practice” by Peter Walton and Chris Umfreville
  3. “Debt Restructuring” by Rodrigo Olivares-Caminal

Accounting Basics: “Administration Order” Fundamentals Quiz

### Who can appoint an administrator in an out-of-court administration? - [x] The company directors - [x] The holder of a floating charge - [x] The company itself - [ ] Competitors of the company > **Explanation:** In out-of-court administration, the appointment of an administrator can be done by the company directors, the holder of a floating charge, or the company itself with the aim to stabilize or restructure the business. ### During an administration order, what is prevented without the leave of the court? - [ ] Payment restructuring - [x] Individual creditor claims - [ ] Company rebranding - [ ] Stock purchases > **Explanation:** While an administration order is in place for individuals, creditors cannot enforce their individual claims against the debtor without the court's permission. ### Which act governs corporate administration in the UK? - [ ] Companies Act 2006 - [ ] Economic Crime Act 2022 - [x] Insolvency Act 1986 - [ ] Financial Services Act 2012 > **Explanation:** The Insolvency Act 1986 governs corporate administration in the UK, detailing procedures and aims for companies in financial difficulty. ### What is the primary aim of a corporate administration order? - [ ] Liquidating the company's assets immediately - [ ] Allowing creditors to take legal actions individually - [x] Securing the company's survival as a going concern - [ ] Initiating bankruptcy procedures > **Explanation:** The primary goal of a corporate administration order is to secure the company's survival as a going concern or, if not possible, achieve a more favorable realization of its assets compared to liquidation. ### Who benefits from an administration order in the case of individual debts? - [x] The debtor - [x] The creditors collectively - [ ] Only secured creditors - [ ] Government tax authorities > **Explanation:** Both the debtor and the creditors collectively benefit from an individual administration order. The debtor gains a structured repayment plan, while creditors receive regular payments. ### Which is not a criterion for applying for an individual administration order? - [ ] Multiple debts are owed - [ ] It is feasible to make instalment payments - [ ] The debtor wants to sell their assets - [ ] Bankruptcy can be avoided > **Explanation:** Selling assets is not a criterion for applying for an individual administration order. The focus is on managing multiple debts through structured payments to avoid bankruptcy. ### What type of debt does a floating charge usually cover? - [ ] Specific real estate - [ ] Company profits - [x] Changing assets like inventory - [ ] Salaries of employees > **Explanation:** A floating charge typically covers a fund of changing assets, such as inventory, which allows businesses flexibility in managing their assets while providing security to creditors. ### How does an administration order affect a company's operations? - [ ] It usually halts all business activities. - [x] It places the management of the company under an administrator. - [ ] It allows immediate asset liquidation. - [ ] It encourages employees to seek new employment. > **Explanation:** An administration order places the management of the company under an appointed administrator who takes over to stabilize the company's financial status or oversee asset realization. ### What is the major legal benefit of an administration order for companies? - [ ] Reduced tax rates - [x] Protection from creditors' legal actions - [ ] Automatic increase in share valuation - [ ] Simplified operational procedures > **Explanation:** The major legal benefit is the protection from legal actions by creditors seeking to wind up the business, giving the company a chance to restructure or stabilize. ### Which of the following is true regarding administration orders since 2003? - [x] Out-of-court administration has been introduced - [ ] Administration orders have been completely abolished - [ ] Only government entities can issue such orders - [ ] Administration orders now generally lead directly to liquidation > **Explanation:** Since 2003, out-of-court administrations have been introduced, which allow companies, its directors, or floating charge holders to directly appoint an administrator without court intervention.

Thank you for learning about the detailed aspects and essentials of administration orders through our comprehensive guide and challenging quiz questions. Keep expanding your financial expertise!

Tuesday, August 6, 2024
Administration Overhead (Administration Expenses)
Administration Expenses
All Washed Up January 1, 1
Annulment January 1, 1
Bankruptcy January 1, 1
Debt Administration January 1, 1
Insolvency January 1, 1
Insolvency Administration Order January 1, 1
Insolvency Service January 1, 1
Liquidate January 1, 1
Preference January 1, 1
Preferential Debt January 1, 1

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