Are You Worried about Recovering Money Owed from a Debtor who is in Administration?

By: Qarrar Somji

Date: 24/05/2023

Topic: Corporate Insolvency | Insolvency

If a customer, supplier or other business you deal with has gone into administration and still owes you money, it can be unsettling and confusing. You may be wondering:

Will I get paid at all?
Can I still chase the debt or start court action?
What should I do next to protect my position?

This guide explains, in plain English, what administration means under UK law, how it affects your rights as a creditor, and the practical steps you can take if a company in administration owes you money. It is general information only and is not a substitute for legal advice about your specific circumstances.

Summary

This blog covers:

What is Administration?
How Administration Affects Creditors: The Moratorium
First Steps If a Company That Owes You Money Goes into Administration
Registering Your Claim and Submitting a Proof of Debt
Who Gets Paid First in an Administration?
Common Situations for Creditors
The Role of the Administrator and What You Can Expect
How Long Does Administration Last and What Are the Likely Outcomes?
What If You Are an Unsecured Creditor?
If You Are Unhappy with the Administrator’s Conduct
How We Can Help
FAQ

What is Administration?

Administration is a formal insolvency procedure under the Insolvency Act 1986. When a company enters administration, control of the company passes to an independent professional called an administrator, who must be a licensed insolvency practitioner.

The law says that administration must be likely to achieve one of three statutory objectives, set out in paragraph 3 of Schedule B1 to the Insolvency Act 1986:

The Primary Objective: Rescue the company as a going concern
The Secondary Objective: Achieve a better result for creditors as a whole than would be likely if the company were wound up (liquidated) immediately
The Third Objective: Realise property to make a distribution to one or more secured or preferential creditors if the first two objectives are not reasonably practicable

In practice, this means administration is usually about:

Trying to save or sell the business (for example, via a “pre-pack” sale), or
Closing the business in an orderly way should, in theory, return more to creditors than an immediate liquidation.

How Administration Differs from Liquidation

Very briefly:

Administration focuses first on rescue or a going-concern sale, under the protection of a moratorium.
Liquidation is usually about winding the company up and distributing any remaining assets to creditors; the business typically stops trading.

Understanding this difference helps you see why you may not get paid immediately and why the administrator may continue trading, sell parts of the business or propose a restructuring.

How Administration Affects Creditors: The Moratorium

One of the main consequences of administration for creditors is the statutory moratorium.

What is the Administration Moratorium?

When a company goes into administration, a legal “pause button” is pressed. Under paragraph 42 of Schedule B1 Insolvency Act 1986, most legal and enforcement action against the company is automatically stayed (put on hold)

In broad terms, during administration:

You cannot usually start or continue court proceedings against the company
You cannot normally enforce an existing judgment (for example, through bailiffs or other enforcement)
Certain landlord remedies (such as forfeiture of a commercial lease) are also restricted

The idea is to give the administrator “breathing space” to assess the situation and pursue one of the statutory objectives without the company being pulled apart by individual creditor actions.

Important: There is also a separate, freestanding Part A1 moratorium introduced by the Corporate Insolvency and Governance Act 2020, which provides similar temporary protection before a formal procedure like administration. This guide focuses on the moratorium that applies once the company is already in administration.

Can the Moratorium Be Lifted or Varied?

In some situations, a creditor can ask the court for permission to begin or continue proceedings, or to take enforcement steps despite the moratorium. The court will weigh up:

The impact on the creditor
The impact on the collective body of creditors
Whether allowing the action would undermine the purpose of the administration

This is a technical area with costs and risks. You should take specialist advice before issuing any application to court.

First Steps If a Company That Owes You Money Goes into Administration

If you discover that a company which owes you money is in, or about to go into, administration, there are some sensible steps you can take straight away:

1. Confirm the Company’s Status

Check any formal notice you have received from the company, its directors or an insolvency practitioner.
Search the company on Companies House and check the filings for any appointment of an administrator or notice of intention to appoint.

This confirms exactly what stage the process is at and who the administrator is.

2. Identify and Contact the Administrator

Once appointed, the administrator must send certain notices to known creditors and file their appointment at Companies House.

You can:

Use the information in the notice or Companies House filings to obtain the administrator’s name, firm and contact details
Provide basic information about your claim and request to be added to the creditor list if you have not been contacted yet

3. Stop Routine Enforcement and Chasing

Due to the moratorium:

Standard debt-recovery tactics (threatening court action or enforcement) are often no longer effective
Issuing a fresh claim or continuing existing proceedings usually requires the permission of the administrator or the court

Instead of spending time and money on actions that may not proceed, focus on:

Ensuring you are properly recognised as a creditor
Getting accurate information about the administration

4. Gather Your Documentation

The administrator will need to understand and verify your claim. It helps to gather:

Copies of contracts, purchase orders or terms and conditions
Invoices and credit notes
Delivery notes or proof of services supplied
Account statements and relevant email correspondence

Having everything organised makes it easier to complete a proof of debt and to respond quickly if the administrator has queries.

Registering Your Claim and Submitting a Proof of Debt

To take part in any distribution to creditors, you will usually need to formally register your claim.

What is a Proof of Debt?

A proof of debt (sometimes called a statement of claim) is a form used in insolvency procedures to:

Set out the amount you say you are owed
Explain what the debt relates to (for example, unpaid invoices for goods supplied)
Attach supporting evidence

The proof of debt enables the administrator to admit, reduce or reject your claim and to include you in any future dividends to creditors.

How Do I Submit It?

Typically:

The administrator sends creditors a standard proof of debt form or tells them how to access it.
You complete the form, attaching evidence such as invoices and statements.
You return it to the administrator by the specified deadline (for example, before a creditors’ decision procedure or proposed distribution).

If you disagree with the amount the administrator admits or if your claim is rejected, you may be able to challenge that decision. This may require legal advice, particularly for larger or disputed claims.

Who Gets Paid First in an Administration?

When money is available to distribute, the administrator must follow a strict order of priority. Broadly, payments are made in this order:

Fixed Charge Holders: Creditors with security over specific assets (for example, a bank with a legal charge over property or key machinery).
Expenses and Remuneration of the Administrator: The costs of running the administration and the administrator’s fees.
Preferential Creditors: Certain employee claims (such as some unpaid wages and holiday pay) and certain pension contributions.
Prescribed Part for Unsecured Creditors (in some administrations): A ring-fenced portion of floating charge realisations set aside for unsecured creditors under section 176A of the Insolvency Act 1986.
Floating Charge Holders: Creditors with security over changing assets such as stock, work-in-progress and receivables.
Unsecured Creditors: Most trade suppliers, customers and other unsecured lenders.
Interest on Debts
Shareholders: Owners of the company are last in line and often receive nothing.

What This Usually Means for Unsecured Creditors

Most businesses and individuals relying on this kind of guide are unsecured creditors. In many administrations:

Secured and preferential creditors may absorb most of the available value.
The “prescribed part” may provide some return to unsecured creditors, but this is often only a proportion of what is owed.
In some cases, there are no funds available for a distribution to unsecured creditors at all.

A simple example: if total unsecured claims are £500,000 and only £50,000 is available for unsecured creditors after higher-priority claims are paid, unsecured creditors may receive around 10p in the pound. The actual figure depends on the specific case.

Common Situations for Creditors

Trade Suppliers and Business-to-Business Creditors

If you are a supplier owed money for goods or services already provided:

You will usually be an unsecured creditor
You should submit proof of debt and keep in touch with the administrator
Think carefully before supplying further goods or services on credit; if you do, consider insisting on payment in advance or other protections.

Customers Who Paid in Advance

If you paid a deposit or paid in full for goods or services you have not received:

You will often be treated as an unsecured creditor for the amount you paid
If you paid by credit card, you may have potential rights under Section 75 of the Consumer Credit Act 1974 or via a card chargeback in some circumstances (particularly relevant for consumers). These are separate from the administration, and you should check with your card provider and/or seek advice.

Retention of Title (ROT): Can You Get Your Goods Back?

If you supplied goods and your terms include a retention of title clause (sometimes called “Romalpa” clause):

The clause may, in some cases, allow you to claim back specific goods that remain your property until paid for
The effectiveness of ROT clauses is highly fact-sensitive and depends on the precise wording and how the goods have been dealt with (for example, whether they have been resold or used in manufacturing)
You should raise potential ROT rights with the administrator as soon as possible and provide your contract terms and evidence of supply.

Because ROT issues can be complex, it is wise to seek legal advice where significant value is involved.

Set-off and Mutual Dealings

In some situations, if you owe money to the company as well as being owed money by it, there may be rules on insolvency set-off which affect how the net balance is calculated.

This is another technical area where specific advice can be helpful, particularly if the sums are large or there are disputes.

The Role of the Administrator and What You Can Expect

The administrator is a licensed insolvency practitioner appointed either by the court, by the company or its directors, or by certain qualifying floating charge holders.

Their key responsibilities include:

Taking control of the company’s affairs and assets
Formulating proposals to achieve one of the statutory objectives of administration
Reporting to creditors and the Registrar of Companies

Key Timelines

Under the Insolvency Act 1986 and associated rules:

The administrator must prepare proposals setting out how they intend to achieve the purpose of the administration, normally within 8 weeks of appointment.
Creditors are then asked to decide on those proposals within 10 weeks of the administration starting (often via a written decision procedure rather than an in-person meeting).
The administrator must provide progress reports at least every 6 months, which should be sent to creditors and filed at Companies House.

What You Should Receive as a Creditor

Practically, you can expect to receive:

Notice that the company has gone into administration
Details of the administrator and how to contact them
Information on how to submit your claim
A copy or summary of the administrator’s proposals and how to vote or respond
Periodic progress reports and, where relevant, information on any proposed distributions

If you believe you have been left off the creditor list or are not receiving information, you should contact the administrator promptly.

How Long Does Administration Last and What Are the Likely Outcomes?

An administration normally lasts for up to 12 months initially, but the court or creditors can agree extensions where necessary.

Common outcomes include:

Rescue of the company as a going concern (for example, via restructuring)
Sale of the business or its assets (sometimes via a “pre-pack” sale, where the sale is agreed before administration and completed immediately afterwards)
Move into liquidation once the administrator has realised the assets
Dissolution if there are no funds for a liquidation, and creditors have been dealt with as far as possible

For unsecured creditors, realistic expectations are important:

Payments (if any) are often made months or years after the company first enters administration
The amount recovered may be only a proportion of what is owed
Unfortunately, in some cases, there is no distribution to unsecured creditors at all

What If You Are an Unsecured Creditor?

If you are an unsecured creditor (as many trade suppliers and customers are), your practical priorities usually include:

Making sure your claim is properly lodged and supported
Monitoring progress reports from the administrator
Considering whether you have any additional protections, such as ROT, guarantees or insurance
Deciding whether it is worthwhile to challenge any decision which adversely affects your claim

Getting early advice can help you understand:

Where you sit in the priority order
What a realistic recovery might look like
Whether there are cost-effective steps you can still take (for example, asserting ROT or clarifying set-off)

If You Are Unhappy with the Administrator’s Conduct

Most administrators act professionally, but if you have serious concerns, there are potential routes to raise them.

These may include:

Raising issues directly with the administrator in writing and asking for an explanation or reconsideration
Using any formal complaints process operated by their firm or by their professional body
In some cases, applying to the court to challenge the administrator’s conduct or decisions, for example, where they are alleged to be unfairly prejudicial to your interests or not in accordance with their duties

Court applications can be complex and carry cost risks. It is usually sensible to obtain specialist legal advice before taking any such step.

How We Can Help

Dealing with a company in administration can be time-consuming and stressful, especially when significant sums are at stake.

While this guide cannot cover every scenario and does not amount to formal legal advice, our insolvency and commercial litigation team can:

Review your contracts, invoices and other documents
Clarify whether you are likely to be treated as a secured, preferential or unsecured creditor
Assist with proofs of debt and correspondence with the administrator
Advice on potential retention of title, guarantees and set-off issues
Discuss the pros and cons of more formal steps, such as applying to court for permission to take action or challenging the administrator’s decisions.

If a company in administration owes you money and you are unsure about your next step, you can get in touch for an initial discussion about your situation and options.

FAQ

Can I still sue a company once it has gone into administration?

Generally, no. The administration moratorium means you usually cannot start or continue court proceedings or enforcement against the company without the administrator’s consent or the court’s permission.

Will I get all of my money back?

It is uncommon for unsecured creditors to recover everything they are owed. The amount you receive (if anything) depends on:

The value realised from the company’s assets
The size of higher-priority claims (secured and preferential creditors, expenses)
The total unsecured claims submitted

Often, unsecured creditors receive only a percentage of what they are owed.

How long does administration usually last?

An administration is usually intended to last up to 12 months at first, but can be extended. From a creditor’s perspective, it can take months or longer before it becomes clear whether there will be a distribution and in what amount.

What’s the difference between administration and liquidation?

Administration focuses on rescue or achieving a better result for creditors under the protection of a moratorium.
Liquidation is primarily about winding the company up and distributing any remaining assets to creditors; the business usually ceases trading.

Can I still supply goods or services to a company in administration?

Sometimes administrators continue to trade the business while they explore a sale or restructuring. If you are asked to supply during administration, you should:

Take advice before extending significant new credit.

Clarify whether you will be paid as an expense of the administration for new supplies (which may give you a better priority).

Consider seeking payment up front or other protections.