ACCA F4 - Corp and Business Law (ENG)

332 21: Insolvency and administration  Part G Legal implications of companies in difficulty or in crisis

Administration puts an insolvency practitioner in control of the company with a defined programme for

rescuing the company from insolvency as a going concern.

Its purpose is to insulate the company from its creditors while it seeks:

 To save itself as a going concern, or failing that

 To achieve a better result for creditors than an immediate winding up would secure, or failing that

 To realise property so as to make a distribution to creditors.

Administration orders and liquidations are mutually exclusive. Once an administration order has been

passed by the court, it is no longer possible to petition the court for a winding up order against the

company. Similarly, however, once an order for winding up has been made, an administration order

cannot be granted (except when appointed by a floating chargeholder).

Administration can be initiated with or without a court order.

5.2 Appointment without a court order

Some parties – secured creditors and directors and the members by resolution – can appoint an

administrator without a court order.

It is possible to appoint an administrator without reference to the court. There are three sets of people

who might be able to do this:

 Floating chargeholders

 Directors

 Company

5.2.1 Floating chargeholders

Floating chargeholders have the right to appoint an administrator without reference to the court even if

there is no actual or impending insolvency. They may also appoint an administrator even if the company

is in compulsory liquidation. This enables steps to be taken to save the company before its financial

situation becomes irreversible.

In order to qualify for this right, the floating charge must entitle the holder to appoint an administrator.

This would be in the terms of the charge. It must also be over all, or substantially all, the company's property.

In practice, such a floating chargeholder with a charge over all or substantially all the company's property

is likely to be a bank.

However, the floating chargeholder may only appoint an administrator if:

 They have given two days written notice to the holder of any prior floating charge where that

person has the right to appoint an administrator.

 Their floating charge is enforceable.

After any relevant two day notice period the floating chargeholder will file the following documents at

court:

 A notice of appointment in the prescribed form identifying the administrator

 A statement by the administrator that they consent to the appointment

 A statement by the administrator that, in their opinion, the purpose of the administration is likely

to be achieved

 A statutory declaration that they qualify to make the appointment

Once these documents have been filed, the appointment is valid. The appointer must notify the administrator

and other people prescribed by regulations of the appointment as soon as is reasonably practicable.

Key term

Point to note

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