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ACCA Applied Skills · Corporate and Business Law (Global) · Insolvency and administration

Which of the following is a consequence of a company entering administration, as opposed to liquidation, in the usual insolvency law model?

In administration a moratorium generally restrains creditor enforcement action while the administrator pursues the statutory purpose, such as rescuing the company or getting a better result for creditors than liquidation. The company keeps its legal personality and secured creditors keep their security.

  1. AThe company must be wound up and its legal personality ends immediately
  2. BA moratorium generally protects the company from creditor enforcement action while the administrator pursues the statutory purposeCorrect
  3. CAll secured creditors lose their security
  4. DDirectors become personally liable for all the company's debts

Explanation

Administration aims to rescue the company or achieve a better result for creditors than liquidation, and a moratorium restricts enforcement action during the process. The company continues to exist, unlike on completion of liquidation. Secured creditors do not lose their security, and directors are not automatically liable for debts.

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