ACCA F4 - Corp and Business Law (ENG)

Part G Legal implications of companies in difficulty or in crisis  21: Insolvency and administration 333

5.2.2 Company and directors

The process by which a company commences appointing an administrator will depend upon its articles of

association. A company or its directors may appoint an administrator if:

 The company has not done so in the last 12 months or been subject to a moratorium as a result of

a voluntary arrangement with its creditors in the last 12 months

 The company is, or is likely to be, unable to pay its debts

 No petition for winding up nor any administration order in respect of the company has been

presented to the court and is outstanding

 The company is not in liquidation

 No administrator or receiver is already in office

The company or its directors must give notice to any floating chargeholders entitled to appoint an

administrator. This means that the floating chargeholders may appoint their own administrator within this

time period, and so block the company's choice of administrator.

5.3 Appointment with a court order

Various parties can apply for administration through the court.

There are four sets of parties that may apply to the court for an administration order:

 The company (that is, a majority of the members by (ordinary) resolution)

 The directors of the company

 One or more creditors of the company

 The Justice and Chief Executive of the Magistrates' Court following non-payment of a fine

imposed on the company

The court will grant the administration order if it is satisfied that the company is, or is likely to be, unable

to pay its debts, and the administration order is reasonably likely to achieve the purpose of

administration. The application will name the person whom the applicants want to be the administrator.

Unless certain interested parties object, this person is appointed as administrator.

5.4 The effects of appointing an administrator

The effects of administration depend on whether it is effected by the court or by a floating chargeholder,

to some degree.

Effects of an administrator appointment

A moratorium over the company's debts commences (that is, no creditor can enforce their debt during the

administration period without the court's permission). This is the advantageous aspect of being in

administration.

The court must give its permission for:

 Security over company property to be enforced

 Goods held under hire purchase to be repossessed

 A landlord to conduct forfeiture by peaceable entry

 Commencement/continuation of any legal process against the company

The powers of management are subjugated to the authority of the administrator and managers can only

act with their consent.

All outstanding petitions for winding-up of the company are dismissed.

Any administrative receiver in place must vacate office. No appointments to this position can be made.

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