An Administration Order is an informal arrangement where a court agrees that a person’s debts of up to £5,000 can be paid in part, and by instalments, based on certain conditions. Stays on your credit report for 6 years, alongside all the loans and credit which were included in the Administration Order. There are four basic conditions for an Administration Order, you must:
- owe less than £5,000, including any interest and charges
- owe money to at least two creditors
- prove you can afford your repayments - for example, give details of your income
- have a County Court Judgment or High Court Judgment against you, which you can’t pay in full
Like other forms of insolvency, the purpose of an Administration Order is to draw a line under your current financial predicament, and to protect you from your creditors pressing you for repayment. Once the Administration Order is granted, creditors are not allowed to pursue you for debt.
One of the big advantages of an Administration Order is that unlike bankruptcy, there is no up-front fee to pay, but remember that the Courts take 10% of your total debts as a fee, so it’s not entirely free, and unlike bankruptcy, you can’t get out of it within 12 months.
An Administration Order is also used to protect a company experiencing short or medium term financial problems from its creditors. In this case the above rules don’t apply at all - the Administration Order is effectively a court order that forbids any form of legal or insolvency action without the court's permission. An application to the court for an Administration Order may be made by the company, the directors, a creditor or any combination of them.
The Enterprise Act 2002 amended the Insolvency Act 1986 to provide an out of Court process to appoint an administrator to the holder of a floating charge or the company or its directors. This is considerably cheaper and simpler than the previous system, which involved an application to Court.