Administration is a legal process to protect a company under threat from winding up petitions and subsequent closure. As long as it can be shown to be for the greater good of it’s creditors that it is better for it to continue.
Where there are secured creditors holding a debenture or mortgage over the company, the law requires they be given 5 days prior notice of the administration. The charge holder will need to give them permission for the process to go ahead.
Basically the Company enters into Administration to gain protection from its creditors. This can give necessary time for the administrator to achieve a better price for the realisation of the assets of the Company due to business continuity and the preservation of the goodwill vested in the company.
Sometimes this is done immediately after the company enters the administration. Previous Directors or Management purchasing the assets of the Company from it’s Administrator and commencing setting up a new Company. These are referred to as Pre Pack Administrations.
Sometimes the Company will exit the Administration by entering into a Company Voluntary Arrangement.