Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which statement is true regarding the directors' powers during administration?

1. They cannot make any decisions

2. They have no responsibilities

3. They can continue to manage the company

4. They are solely accountable to the administrator

The correct answer is: They can continue to manage the company

The statement that directors can continue to manage the company during an administration is accurate because, while an administrator takes control of the company to work towards rescuing it or maximizing its value, the directors still retain certain powers. The directors may continue to operate within certain frameworks and responsibilities mandated by the law and the administrator’s guidance. During administration, the administrator assumes control of the company's operations and can make strategic decisions; however, the directors are not completely stripped of their powers and can remain involved in the company's management. Their ability to manage is often subject to the conditions set forth by the administrator, but they still hold a degree of operational authority as they transition to the new structure imposed by the administration process. The other statements do not hold true within the context of administration. Directors do retain some level of responsibility, particularly towards shareholders and creditors. They are also not entirely accountable solely to the administrator; rather, they must ensure they operate within the law and the best interests of the company, balancing the expectations of various stakeholders.