Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is true about the status of directors during the administration?

1. They are removed

2. They continue in office

3. They are replaced by the administrator

4. They are suspended permanently

The correct answer is: They continue in office

During an administration, the status of directors is such that they continue in office. This is key to understanding the role of directors during corporate difficulties. While an administrator is appointed to manage the company's affairs, the existing directors retain their positions. They may continue to participate in the company’s business operations unless there is a specific directive from the administrator or a court order that alters that status. The continuing involvement of directors serves various purposes, such as ensuring that there is continuity in management and that directors can provide valuable insights regarding the company's operations, history, and prospects to the administrator. However, it is important to note that their powers may be significantly curtailed, as the administrator takes over the decision-making responsibilities to attempt to rescue the company. This structure is designed to balance the interests of creditors with the existing leadership's experience and knowledge of the business, reflecting a nuanced approach to corporate governance during financial distress.