Management Notes

Reference Notes for Management

Someone legally appointed to resolve the financial difficulties of an insolvent firm is called

Someone legally appointed to resolve the financial difficulties of an insolvent firm is called


A. an administrator.
B. a predator.
C. an auditor.
D. a turnaround consultant.

The Correct Answer Is:

  • A. an administrator.

The correct answer is A. an administrator.

To understand why the correct answer is an administrator, we must delve into the roles and responsibilities of an administrator in the context of an insolvent firm. Additionally, we will explain why the other options (B, C, and D) are not correct in this scenario.

Why the correct answer is A. an administrator:

An administrator is a professional who is legally appointed to manage and resolve the financial difficulties of an insolvent firm. This role is often associated with insolvency and bankruptcy proceedings, and the administrator’s primary objective is to maximize the value of the firm’s assets for the benefit of its creditors. Here’s why the answer is correct:

1. Insolvency Resolution:

When a company becomes insolvent, it means that it is unable to meet its financial obligations and pay its debts. In such a situation, the appointment of an administrator is a standard legal procedure in many countries, including the United Kingdom.

The administrator takes control of the company’s affairs and works to either rescue the business as a going concern, sell it as a whole, or liquidate its assets to pay off creditors. The administrator’s role is pivotal in determining the future of the insolvent firm.

2. Maximizing Creditor Interests:

The administrator’s primary duty is to act in the best interests of the creditors, including both secured and unsecured creditors. They are responsible for managing the firm’s assets to ensure that they are distributed in a fair and equitable manner among the creditors.

This involves a thorough assessment of the company’s financial situation, negotiations with creditors, and implementing a strategy that maximizes the returns to creditors.

3. Legal Framework:

The appointment of an administrator is carried out under the framework of insolvency and bankruptcy laws. The administrator has legal authority to make key decisions, such as entering into arrangements with creditors, selling assets, and restructuring the business if possible. Their actions are closely regulated by these legal provisions to ensure fairness and transparency in the process.

4. Financial Expertise:

Administrators are typically professionals with expertise in insolvency, accounting, and finance. They bring a deep understanding of financial matters to the table, which is crucial in navigating the complex financial difficulties faced by an insolvent firm. This expertise is especially relevant when determining the financial viability of the business and formulating strategies for its resolution.

Why the other options are not correct:

B. A predator:

The term “predator” does not have any relevance to the role of a professional appointed to resolve the financial difficulties of an insolvent firm. In fact, “predator” has a negative connotation and is typically associated with individuals or entities that engage in harmful or exploitative behavior. It is not a term used in the field of insolvency and financial restructuring.

C. An auditor:

An auditor is a professional responsible for examining and verifying financial statements and reports to ensure their accuracy and compliance with accounting standards. While auditors play a critical role in assessing a company’s financial health, they do not have the legal authority to manage or resolve the financial difficulties of an insolvent firm.

Their primary function is to provide independent assurance on financial information, not to intervene in the operational or strategic aspects of a company facing insolvency.

D. A turnaround consultant:

A turnaround consultant is a professional who specializes in helping distressed companies recover from financial difficulties and improve their operations. While turnaround consultants are skilled in developing strategies to revitalize a struggling business, they are not typically appointed by the legal system to manage the affairs of an insolvent firm.

Instead, they are often hired by the company’s management or owners to provide advisory services. Their role is more focused on operational and strategic improvements, rather than the broader legal and financial aspects of insolvency resolution.

In summary, the correct answer is A. an administrator, as this professional is legally appointed to manage and resolve the financial difficulties of an insolvent firm, with a primary duty to maximize the interests of creditors.

The other options, including “a predator,” “an auditor,” and “a turnaround consultant,” are not relevant to the specific legal and financial responsibilities associated with insolvency proceedings and the resolution of financial distress in a firm.

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