Acca aaa s21 Notes

September 2021 to June 2022 exams
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3. Administration
If management decides to try to ‘save’ the company, it can be put into administration, which offers 
some time and legal protections while formulating a rescue plan. The main advantage of this option is 
that once an administrator is appointed, there is a moratorium over the company’s debts (i.e. the 
creditors cannot present a winding-up petition to the court). 
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The court will only grant an administration order in response to a petition (by the company, its 
directors or creditors) if satisfied that:
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the company is (or likely to become) insolvent; and 
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that administration is likely to achieve its purpose. 
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An administrator may be appointed without a court order by a floating chargeholder or the 
company or its directors. 
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The administrator is given a short period of time (usually eight weeks) to set out a proposal for 
achieving the aim of the administration or to decide that a rescue is not reasonable. 
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Proposals are accepted or rejected at a creditors’ meeting. 
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The administrator takes over the company’s management and has the power to appoint and 
remove directors. 
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Administration usually lasts for 12 months, but may be extended (with the creditors’ approval) 
or end early (if administration is successful).
4. Liquidation (‘winding up’)
A company that cannot be saved will cease to trade – assets are sold, liabilities paid (applying the 
‘priority rules’ below), and eventually the company will be dissolved. Once liquidation proceedings 
commence share dealings must stop and the directors lose their power to manage the company. 
There are different ways in which the process is initiated:
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Compulsory liquidation – usually on the grounds that the company is unable to pay its debts 
(i.e. fails to pay a statutory demand for more than £750 within 21 days). A member (for at least 
six months) may also petition the court for winding up on the ‘just and equitable’ ground. 
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An Official Receiver (an officer of the court) takes control of the company and its assets until a 
liquidator is appointed.
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Company ceases new business, floating charges ‘crystallise’ and employs are automatically 
dismissed.
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Directors must prepare a ‘statement of affairs’ (i.e. details of all assets, liabilities, creditors and 
any security they hold).
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Liquidator investigates the causes of the company’s failure, realises the company’s assets and 
distributes proceeds in a prescribed order.
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Liquidator files a final return with the court and the Register of Companies (company is 
dissolved).