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

Zephyr Components Ltd is in financial difficulty and its directors want a moratorium on creditor action while a rescue plan is attempted. Which description best states the primary purpose of placing a company into administration?

The main purpose of administration is to rescue the company as a going concern. If that cannot be achieved, the administrator aims for a better outcome for creditors as a whole than an immediate winding up would produce, while a moratorium protects the company meanwhile.

  1. ATo rescue the company as a going concern, or if that is not possible, achieve a better result for creditors than an immediate winding upCorrect
  2. BTo ensure that the directors are removed and replaced by the shareholders
  3. CTo bring about the immediate dissolution of the company and removal from the register
  4. DTo distribute the company's assets to shareholders before creditors are paid

Explanation

Administration is a rescue-oriented procedure. The administrator's objectives are, in order, to rescue the company as a going concern, then to achieve a better result for creditors as a whole than winding up would, and then to realise property to pay secured or preferential creditors. Dissolution and paying shareholders first are features of other processes, not the purpose of administration.

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