Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which of the following is not an immediate and automatic consequence of administration?

1. All employees are made redundant

2. The company is protected from creditors

3. Management is transferred to an administrator

4. Assets are frozen

The correct answer is: All employees are made redundant

The correct answer highlights that not all employees are immediately made redundant when a company goes into administration. In an administration process, the primary goal is to rescue the business, and this can include keeping employees on board to ensure operations continue during the administration period. The administrator may seek to restructure the company, which can involve retaining key staff to maintain value and viability. In contrast, the other options describe automatic and immediate outcomes of entering administration. The company is granted protection from creditors, allowing it some breathing space to reorganize without the immediate threat of insolvency actions. Management indeed transfers to the appointed administrator, who takes control over the company's affairs to assess its financial situation and develop a rescue plan. Additionally, assets of the company are typically frozen upon entering administration, which prevents any further claims or sales by creditors during this critical period. These protections and changes are designed to stabilize the company while exploring the best pathways forward.