Keenan and Riches’BUSINESS LAW

Chapter 6Companies

a floating charge over the whole or substantially the
whole of the company’s property, such as a bank, would
normally apply to the court for the appointment of an
administrator if they can make a case that the company’s
interests would be better served by administration.

The purpose of administration

The Schedule clarifies the purpose of an administration
and puts greater emphasis on company rescue. The
prime objective is to rescue the company. Where this
is not reasonably practicable, the objective becomes the
realisation of the company’s property in order to make
a distribution to one or more preferential and secured
creditors. Finally, where there are insufficient funds to
pay off the unsecured creditors, the administrator must
not harm their interests when making the above pay-
ments as by selling property too cheaply to conclude more
quickly the payments that can be made to the priority
categories.
The objectives are not alternatives but must be
applied in sequence, if the primary objective of rescue
is not reasonably possible. In the absence of bad faith,
the viability of company rescue will be a matter for the
administrator whose judgement the court will normally
accept, should the matter be raised. An obvious reason
for not pursuing rescue would be where this would need
the support of the company’s bankers that was not
forthcoming and where no other means of financing the
company was available. Where rescue is not possible the
administrator in turning to the objective of seeking a
better result for creditors than in a winding-up might
try to sell one or more of the company’s businesses as a
going concern or sell the assets without a going concern
basis. Where none of the company’s businesses is viable,
all that can be done is to sell the company’s assets in
order to make a distribution to those holding fixed charges
(if these persons have not already sold the charged asset
but have relied on the administration) and then prefer-
ential debts and then floating charge holders.

Appointment of an administrator

Formerly, an administrator could be appointed only by
order of the court. This route into administration has
been retained. To speed up administration the Schedule
contains provisions under which those holding floating
charges and companies or their directors can appoint an
administrator without a court hearing.

Appointment by the court

Those holding floating charges can apply as can the

company or its directors or one or more of its creditors.

Before making an order the court must be satisfied that

the company is or is likely to become unable to pay

its debts and that the administration is likely to achieve

the purposes of an administration according to its object-

ive. Those applying for an order must notify anyone

who has appointed or is entitled to appoint an admin-

istrative receiver or an administrator. There are still

some restricted circumstances in which an administrat-

ive receiver can be appointed (see p 189). The permis-

sion of the court is required before the application can

be withdrawn. If the court does not make an admin-

istration order, it may make any other appropriate

order, e.g. by treating the application as a petition for

winding-up.

Appointment by the court: effect of

presentation of petition

Following notification of presentation of a petition to

holders of floating charges, those holders can, if they

have enforceable qualifying charges, make an appoint-

ment of an alternative administrator under the procedure

set out for appointments out of court (see below). They

cannot appoint an administrative receiver unless they

are holders of a security granted to them as a holder of a

capital market investment.

The administration order is an alternative to liquida-

tion and cannot be made after any form of liquidation

has started.

The order sets up a ‘moratorium’ which prevents the

individual enforcement of claims against the company.

A winding-up petition may be presented but will only be

allowed to proceed if the application for an administrator

is dismissed. All existing actions against the company

are stayed and no new action may be started. Goods in

the company’s possession that are not owned by the com-

pany, as where they are on hire purchase or on reten-

tion, may not be repossessed.

Appointment out of court

1 By holders of a floating charge

Holders of an enforceable floating charge are able to ap-

point an administrator of their own choosing. Conditions

are:

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