What Happens When a Company Goes Into Administration? UK Rules for Creditors and Directors

What happens when a company goes into administration: the short answer

Administration is a rescue-focused insolvency procedure under Schedule B1 to the Insolvency Act 1986 that puts an insolvent or nearly insolvent company under the control of an administrator, who must be a licensed insolvency practitioner. From the moment the appointment takes effect, three things change.

• Control passes to the administrator. According to GOV.UK's guidance on administration, the directors hand over the company and its assets, the administrator runs the business, and the company pays the administrator's fees.
• A moratorium protects the company. Without the administrator's consent or the court's permission, no one can wind the company up, enforce security, repossess hire-purchase goods, forfeit a lease by peaceable re-entry or start or continue legal process.
• Everyone is told. The administrator writes to creditors and Companies House and publishes a notice of the appointment in The Gazette.

The administrator then chooses the route. GOV.UK lists the outcomes: a company voluntary arrangement so the company keeps trading, a sale of the business as a going concern, a sale of the assets followed by a creditors' voluntary liquidation, or closure if there is nothing to sell. So administration does not necessarily mean the business has closed: in a going-concern sale the trade, clients and workforce can carry on under a new owner while the old company, with its remaining debts, is later liquidated or dissolved.

Administration vs liquidation, CVA, restructuring plan and moratorium

The key differences between the UK's main tools are who is in control and what the procedure is for: liquidation ends the company, while administration tries to save the company or its business first. The Corporate Insolvency and Governance Act 2020 added a standalone moratorium in Part A1 of the Insolvency Act 1986 and the restructuring plan in Part 26A of the Companies Act 2006.

Procedure	Who is in control	Main purpose	Creditor protection	How creditors are bound
Administration	Administrator (licensed insolvency practitioner)	Rescue the company, beat a liquidation outcome, or realise assets for secured or preferential creditors	Statutory moratorium on winding up, enforcement and legal process	Creditors decide on the administrator's proposals
Liquidation (CVL or compulsory)	Liquidator	Realise all assets, pay creditors, dissolve the company	Depends on type; the process ends with the company dissolved	Distribution under the statutory order of priority
Company voluntary arrangement (CVA)	Directors, supervised by a nominee then supervisor	Compromise debts so the company keeps trading	None on its own; can be combined with administration or a Part A1 moratorium	Approved by 75% or more in value of responding creditors, unless more than half of unconnected creditors by value vote against
Restructuring plan (Part 26A)	Directors	Compromise or arrangement to address financial difficulties	None on its own	Court sanction; can bind a dissenting class if no member is worse off than in the relevant alternative
Part A1 moratorium	Directors, overseen by a monitor	Breathing space to pursue a rescue	Initial 20 business days, extendable	Not a compromise; a rescue must follow

The CVA thresholds come from rule 15.34 of the Insolvency (England and Wales) Rules 2016. A restructuring plan needs 75% in value of each voting class, but section 901G of the Companies Act 2006 lets the court sanction it over a dissenting class if none of its members would be worse off than in the "relevant alternative" and a class with a genuine economic interest in that alternative has approved it. A Part A1 moratorium lasts 20 business days at first; directors can add 20 more without creditor consent, and creditors or the court can extend it further, with creditor-approved extensions capped at a year.

Who appoints the administrator, and how

An administrator can be appointed by the court, by the holder of a qualifying floating charge, or by the company or its directors, each on conditions set by Schedule B1.

• Court order (paragraphs 10 to 13). The company, its directors or creditors can apply. The court must be satisfied that the company is or is likely to become unable to pay its debts and that the order is reasonably likely to achieve the purpose of administration. This is the route open to an unsecured creditor.
• Qualifying floating charge holder (paragraph 14). A lender whose floating charge, alone or with other security, covers the whole or substantially the whole of the company's property can appoint out of court once the charge is enforceable, after giving any prior qualifying charge holder two business days' notice or obtaining its consent.
• The company or its directors (paragraph 22). They must give at least five business days' written notice to any qualifying floating charge holder and file it at court with a statutory declaration that the company is or is likely to become unable to pay its debts. They generally cannot appoint while a winding-up petition is pending, and if the company was in administration on an earlier company or directors' appointment, this route is closed for 12 months after that administration ended.

Filing a notice of intention to appoint triggers an interim moratorium while the appointment is completed. In the High Court in England and Wales, administration applications are dealt with in the Insolvency and Companies List, which from 1 October 2026 sits in the new Business and Property Division. Groups with operations in several parts of the country can find advisers across the United Kingdom through the directory.

The statutory purpose and the timetable

Paragraph 3 of Schedule B1 sets a strict hierarchy of objectives, and the administrator must act in the interests of creditors as a whole and "as quickly and efficiently as is reasonably practicable".

1. Rescue the company as a going concern, unless that is not reasonably practicable or the second objective would be better for creditors as a whole.
2. Achieve a better result for creditors as a whole than would be likely if the company were wound up without first being in administration.
3. Realise property for secured or preferential creditors, only if neither of the first two is reasonably practicable and creditors as a whole are not unnecessarily harmed.

The administrator must send proposals to Companies House, creditors and members within eight weeks of the company entering administration (paragraph 49) and seek creditors' decision on them within ten weeks (paragraph 51). No decision is needed if creditors will be paid in full, unsecured creditors will get nothing beyond the prescribed part, or neither of the first two objectives can be met, although creditors holding 10% of the debts can still demand one.

How long can a company stay in administration? Under paragraph 76 the appointment ends automatically after one year. Creditors can consent to one extension of up to a year, and the court can extend it for a specified period before it expires. It can also end earlier when its purpose is achieved, by a move into creditors' voluntary liquidation, or by dissolution.

What happens to staff when a company goes into administration

Employees are not automatically dismissed when a company enters administration: their contracts continue, and the administrator decides whether to keep them, make them redundant or transfer them to a buyer. An insolvent employer must still consult about redundancies and alternatives.

Timing matters. Under paragraph 99(5) of Schedule B1, nothing done in the first 14 days counts as adopting employment contracts; after that, wages, holiday pay and pension contributions under adopted contracts rank ahead of the administrator's own fees.

Dismissed staff claim through the Redundancy Payments Service using a case reference from the insolvency practitioner. According to GOV.UK's guidance for employees of insolvent employers, the government can pay:

• Statutory redundancy pay for employees with at least two years' continuous service, for up to 20 years of service.
• Unpaid wages, overtime and commission, for up to 8 weeks.
• Holiday pay accrued or taken in the 12 months before the insolvency, for up to 6 weeks.
• Statutory notice pay of one week per year of service, up to 12 weeks, with benefits deducted.

Each of these is capped at £751 a week (£719 for redundancies before 6 April 2026), and claims for redundancy pay must be made within six months of dismissal. Amounts above the caps are claims in the administration: pay for the four months before the insolvency, up to a prescribed limit, and accrued holiday pay are preferential under Schedule 6 to the Insolvency Act 1986, and the rest is unsecured. Employers planning redundancies can involve employment lawyers alongside the insolvency team.

Contracts, suppliers and retention of title

Suppliers generally cannot walk away from a contract just because their customer has entered administration. Section 233B of the Insolvency Act 1986, inserted by the 2020 Act, makes a termination clause in a contract for the supply of goods or services to the company stop having effect if it would be triggered by the company entering administration, a Part A1 moratorium, a CVA, liquidation or a restructuring plan. This is the "ipso facto" rule.

The rule goes further than termination clauses:

• Earlier breaches are frozen too. If a right to terminate arose before the insolvency, for example for late payment, it cannot be exercised while the insolvency procedure lasts.
• No ransom payments. A supplier cannot make continued supply conditional on payment of charges for supplies made before the administration.
• Limited exits. In an administration a supplier can terminate only with the administrator's consent or if the court is satisfied that continuing the contract would cause the supplier hardship.
• Exclusions. Schedule 4ZZA excludes certain contracts, including specified financial services.

New supplies ordered by the administrator are an expense of the administration, paid ahead of unsecured debts.

Retention of title (ROT) clauses keep a supplier the owner of goods until they are paid for. Schedule B1 treats a retention of title agreement as a "hire-purchase agreement", so the moratorium stops the supplier repossessing goods without the administrator's consent or the court's permission, and the court can let the administrator sell them if the net proceeds, topped up to market value, go to the supplier. A supplier relying on ROT should identify its goods, notify the administrator in writing and give details in its proof of debt.

If a company goes into administration, can I get my money back?

Customers who paid deposits or are owed refunds are usually unsecured creditors, near the bottom of the order of payment, so they may recover only part of what they are owed. The administrator is not obliged to honour existing orders.

Consumers who paid by credit card for a single item with a cash price above £100 and up to £30,000 may be able to claim from the card issuer instead under section 75 of the Consumer Credit Act 1974, which makes the card provider jointly liable for the supplier's breach of contract. Trade customers should lodge a claim.

And if you owe money to a company in administration, the debt does not disappear: the administrator collects it for the creditors.

Who gets paid first when a company goes into administration?

A creditor's place in the statutory order decides how much it recovers. HMRC's policy paper on its preferential status summarises the order for insolvencies starting from 1 December 2020:

1. Secured creditors with a fixed charge, after the costs of realising the charged asset.
2. Insolvency practitioners' fees and expenses.
3. Preferential creditors, chiefly employees for capped arrears of pay, holiday pay and certain pension contributions.
4. Secondary preferential creditors: HMRC, for specified taxes.
5. Prescribed part creditors (unsecured creditors sharing a ring-fenced fund).
6. Secured creditors with a floating charge.
7. Non-preferential (unsecured) creditors, such as trade suppliers and customers.
8. Shareholders.

HMRC's secondary preferential status covers only taxes the business collected on behalf of others: VAT, PAYE income tax, employee National Insurance contributions, student loan repayments and Construction Industry Scheme deductions. Corporation tax, employer National Insurance, penalties and interest rank as ordinary unsecured debts. The practical effect, as HMRC itself explains, is that these debts are paid ahead of banks holding floating charges and ahead of suppliers, so less is left for both where HMRC's claim is large.

The prescribed part is a fund carved out of floating charge realisations for unsecured creditors under section 176A of the Insolvency Act 1986: 50% of the first £10,000 of net property and 20% of the rest. The Insolvency Act 1986 (Prescribed Part) (Amendment) Order 2020 raised the cap from £600,000 to £800,000 from 6 April 2020, but the higher cap does not apply where the net property goes to a first-ranking floating charge created before that date. It does not apply where the net property is below the prescribed minimum of £10,000 and the cost of a distribution would be disproportionate, and the court can disapply it on the same ground.

Secured lenders also lose control in administration: paragraph 70 lets the administrator deal with floating charge assets as if uncharged (the lender keeps priority over the proceeds), and the moratorium stops enforcement. The Aston Martin creditors' challenge to a branding rights transfer shows how contested financing arrangements made before any formal insolvency can become. Lenders can consult banking and finance lawyers.

Pre-pack sales and the 2021 connected-party rules

A pre-pack is a sale of all or most of a company's business or assets that is negotiated before the administrator is appointed and completed on or soon after appointment, before creditors vote on the proposals. It can preserve value and jobs, but raises concerns when the buyer is connected to the old management.

Since 30 April 2021, the Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 have applied to any "substantial disposal" to a connected person, meaning a disposal, hiring out or sale of all or a substantial part of the business or assets within the first eight weeks of the administration, including one made through a series of transactions. The administrator cannot complete it unless one of two conditions is met:

• Creditor approval. The disposal is included in the administrator's proposals and creditors approve it; or
• A qualifying report. The connected buyer obtains a written report from an independent evaluator who holds professional indemnity insurance, has not advised the company or the buyer on the insolvency or restructuring in the previous 12 months, and states whether the price and grounds for the sale are reasonable in the circumstances.

The evaluator's opinion does not bind the administrator. If the report states that the case for the sale is "not made", the administrator can still proceed but must send creditors and Companies House a copy of the report with a statement of reasons for going ahead, at the same time as the proposals. Connected buyers weighing a pre-pack can work with corporate and M&A advisers as well as insolvency counsel.

What happens to directors when a company goes into administration

Directors stay in office during an administration but lose their management powers: under paragraph 64 of Schedule B1, they cannot exercise any power that would interfere with the administrator's powers without the administrator's consent. The administrator can require them to provide a statement of the company's affairs (paragraph 47) and can remove or appoint directors (paragraph 61).

Can a director just walk away? Resigning does not end the exposure, because the risks relate to conduct before the insolvency:

• Wrongful trading. Under section 246ZB of the Insolvency Act 1986 (and section 214 in liquidation), the court can order a director to contribute to the company's assets if, before the insolvency, they knew or ought to have concluded that insolvent administration or liquidation could not reasonably be avoided and did not take every step to minimise creditors' losses.
• Fraudulent trading. Under sections 246ZA and 213, anyone knowingly party to carrying on the business with intent to defraud creditors, or for any fraudulent purpose, can be ordered to contribute. It is also a criminal offence under section 993 of the Companies Act 2006.
• Disqualification. The administrator must report on the conduct of everyone who was a director in the three years before the insolvency, and under section 6 of the Company Directors Disqualification Act 1986 on an application the court must disqualify an unfit director of an insolvent company for 2 to 15 years.
• Antecedent transactions. An administrator can apply to the court under sections 238 and 239 to reverse transactions at an undervalue and preferences given before the administration.

Section 246ZD lets an administrator assign these claims, including to a buyer who funds the litigation, so how litigation funding works in the UK matters to both sides. Directors facing a claim, and creditors considering one, can approach dispute resolution and litigation specialists as well as insolvency and restructuring counsel.

How to submit a claim in an administration

A creditor recovers nothing unless it submits a proof of debt. Rule 14.3 of the Insolvency (England and Wales) Rules 2016 requires a creditor wishing to recover a debt to submit a proof to the office-holder, and rule 14.4 sets out what it must contain:

• the creditor's name and address;
• the total claimed (including VAT) at the relevant date, less payments and set-off, and whether it includes interest;
• how and when the debt was incurred;
• details of any security held and its value, and of any reservation of title;
• details of documents that substantiate the debt; and
• a date and authentication by the creditor or someone authorised.

A creditor that has proved in the administration is deemed to have proved if the company then moves into liquidation.

Cross-border recognition of a UK administration

Since Brexit, a UK administration no longer benefits from automatic recognition across the EU under the EU Insolvency Regulation. The Insolvency (Amendment) (EU Exit) Regulations 2019 removed its reciprocal parts from UK law, keeping only the "centre of main interests" test as an extra basis for jurisdiction, so an English administrator acting in an EU state relies on that state's own recognition rules.

Inbound recognition works through the Cross-Border Insolvency Regulations 2006, which give the UNCITRAL Model Law on Cross-Border Insolvency the force of law in Great Britain. If a foreign proceeding is in the debtor's centre of main interests, recognition as a "foreign main proceeding" brings an automatic stay on individual actions and execution, and the court can grant further relief in main or non-main cases. Section 426 of the Insolvency Act 1986 separately provides for cooperation between courts within the UK and with designated countries and territories.

The Model Law is not adopted everywhere: compare Malaysia's new Cross-Border Insolvency Act 2026, and the separate rules on enforcing a foreign judgment for money judgments. Serving insolvency proceedings abroad also needs care, as Emirates NBD's bankruptcy claim against Al Kuwari showed. Structure matters too: a UK subsidiary can enter administration on its own, while a branch is part of the overseas company (see branch vs subsidiary).

What creditors and directors should do now

Whether you are owed money or sit on the board, act early, document everything and take advice before the position hardens.

If you are a creditor or supplier:

• Lodge a proof of debt with supporting documents, and note any security or retention of title.
• Take advice on section 233B before suspending supply, and agree terms for new supplies with the administrator.
• Identify goods covered by retention of title and notify the administrator in writing.
• Read the proposals and any connected-party sale report, and vote.

If you are a director:

• Minute board decisions and the cash flow forecasts behind them.
• Take steps to minimise losses to creditors once insolvency is likely, and avoid paying favoured creditors or connected parties.
• Compare the options in the table above, including a Part A1 moratorium or restructuring plan that keeps control with the board.

When to speak to an insolvency lawyer. Get advice as soon as a director believes the company may be unable to pay its debts, before giving notice of intention to appoint, before buying assets from an administrator (especially as a connected party), when a supplier wants to stop supplying, when a lender is considering enforcement, and whenever a claim against directors or a cross-border asset is involved. The Corporate INTL directory lists insolvency and restructuring lawyers and advisers in more than 150 jurisdictions, including insolvency and restructuring specialists in the United Kingdom. If you would rather be introduced, submit a request through the Find an expert form below this article and we will put you in touch with a member.

In short, what happens when a company goes into administration is a structured, time-limited process: the administrator takes control behind a moratorium, pursues the statutory purpose and pays out in a fixed order, while creditors prove and vote and directors' conduct comes under review.

Frequently asked questions

What happens when a company goes into administration?

A licensed insolvency practitioner takes control from the directors and a moratorium stops creditors suing, enforcing security or winding the company up without consent or court permission. The administrator must rescue the company, beat a liquidation outcome or realise assets for secured or preferential creditors, and publish proposals within eight weeks.

How long can a company stay in administration?

An administrator's appointment ends automatically after one year under paragraph 76 of Schedule B1 to the Insolvency Act 1986. It can be extended once by creditor consent for up to a further year, or by the court for a specified period. It can end sooner if the purpose is achieved or the company moves to liquidation or dissolution.

What is the difference between administration and liquidation?

Administration aims first to rescue the company or its business and gives a moratorium against creditor action while the administrator trades or sells it. Liquidation realises the assets, pays creditors in the statutory order and ends with the company dissolved. An administration can end in a business sale followed by liquidation or dissolution of the old company.

What happens to staff when a company goes into administration?

Contracts continue until the administrator makes staff redundant or transfers them to a buyer. Nothing done in the first 14 days counts as adopting contracts; after that, pay under adopted contracts gets priority. Dismissed employees can claim redundancy pay, up to 8 weeks' arrears, 6 weeks' holiday and notice pay from the government, each capped at £751 a week.

If a company goes into administration, can I get my money back?

Usually only in part. Customers and trade creditors are unsecured, so they are paid after fixed charge holders, costs, preferential creditors, HMRC and floating charge holders, though they share in the prescribed part. Consumers who paid over £100 for a single item by credit card may be able to claim from the card issuer under section 75.

Who gets paid first when a company goes into administration?

Fixed charge holders are paid from their charged assets first, then the insolvency practitioner's fees and expenses, preferential creditors such as employees, HMRC as secondary preferential creditor for VAT and PAYE, the prescribed part for unsecured creditors, floating charge holders, unsecured creditors and finally shareholders.

Can a supplier stop supplying a company in administration?

Not because of the administration. Section 233B of the Insolvency Act 1986 stops termination clauses triggered by the insolvency from taking effect and freezes earlier termination rights. A supplier cannot demand payment of old debts as a condition of supply, and can terminate only with the administrator's consent or the court's permission on hardship grounds.

What are the pre-pack administration rules for connected parties?

Since 30 April 2021, an administrator cannot sell all or a substantial part of the business to a connected person within eight weeks of appointment unless creditors approve or the buyer obtains an independent evaluator's report. If the evaluator says the case is not made, the administrator must explain any decision to proceed.

What happens to directors when a company goes into administration?

Directors remain in office but cannot exercise management powers without the administrator's consent. The administrator reports on their conduct, and they can face wrongful or fraudulent trading claims and disqualification for 2 to 15 years if they were unfit. Resigning does not remove liability for earlier conduct.

Sources

1. The Insolvency Service: Commentary, Company Insolvency Statistics August 2026 (18 September 2026)
2. GOV.UK: Put your company into administration
3. Insolvency Act 1986, Schedule B1 (legislation.gov.uk)
4. Insolvency Act 1986, section 233B: protection of supplies of goods and services (legislation.gov.uk)
5. Corporate Insolvency and Governance Act 2020 (legislation.gov.uk)
6. HM Revenue and Customs: HMRC as a preferential creditor (30 November 2020)
7. The Insolvency Act 1986 (Prescribed Part) (Amendment) Order 2020 (legislation.gov.uk)
8. The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 (legislation.gov.uk)
9. GOV.UK: Your rights if your employer is insolvent, what you can get
10. The Cross-Border Insolvency Regulations 2006 (legislation.gov.uk)

About this article

This analysis was researched and written by The Corporate INTL Newsroom, which covers cross-border legal, regulatory and business developments for lawyers, professional advisers and financiers in over 150 jurisdictions. It has been checked against the Insolvency Act 1986 and Schedule B1, the Corporate Insolvency and Governance Act 2020, the Insolvency (England and Wales) Rules 2016, the Company Directors Disqualification Act 1986, the Companies Act 2006, the 2021 connected-person regulations, the Cross-Border Insolvency Regulations 2006, HMRC and GOV.UK guidance and the Insolvency Service's August 2026 statistics. It describes the law of England and Wales; Scotland and Northern Ireland have their own rules in some areas. This article is general information, not legal advice; for advice on a specific matter, consult a qualified insolvency practitioner or lawyer. Last reviewed 18 October 2026. For more analysis like this, visit the Corporate INTL newsroom or subscribe to Corporate INTL.