Company Law Essay

Q1a) What are the main aims of an Administration Order?
Administration is the process by which a person, is appointed under the Insolvency Act 1986 (as amended by the EA) to manage a company's affairs, business and property. A person can only be appointed the role of administrator by:
-an administration order by the court;
-the holder of a qualifying floating charge (this is most likely to be a bank); or
-by the company or its directors.
Administration will have the following purposes. These, in order of desirability, are:
• to rescue the company as a going concern – as opposed to selling its business and leaving a “shell”;
• to achieve a better result for the creditors as a whole than if the company were wound up;
• to sell the business or its assets in order to pay secured and/or preferential creditors (e.g. employees owed wages/holiday pay).
Administrators can only opt for the second purpose if they think that the first is not likely to be achieved or is not in the best interests of the creditors as a whole. They may not seek to achieve the third (fallback) purpose unless they think neither the primary nor the secondary purpose is likely to be achieved and no unnecessary harm will be caused to the interests of creditors as a whole.
The advantages of an administration order are that, without the consent of adminstrator or leave of the court:
• a company cannot be wound up;
• no legal proceedings can be taken against a company;
• a receiver cannot be appointed and no other steps can be taken to enforce any security;
Once an administrator has been appointed they will take over the management of a company. This will relieve the directors from taking the critical day to day decisions and therefore minimise any risks of liability from that point on.
Q1b) Procedures involved in Administration Order.
A company may enter Administration after a formal court application and hearing (the ‘court route’) or upon filing certain documents at court (the ‘out of court route’).
The out of court route is only available for: holders of qualifying floating charges or a company or its directors.
The court route is only available to: creditors and a company or its directors.
The court route is used by unsecured creditors, as they cannot use the out of court appointment process, or, where the out of court route is prohibited due to a company being subject to ongoing insolvency proceedings. QFCHs,( Qualifying Floating Charge Holder ) companies and directors usually use the ‘out of court route’ as it is generally cheaper and more flexible due to it not being governed by the court’s deadlines.
Once the relevant documents have been filed with the court, the court will fix a time and date for the hearing of the application. In the meantime, the company gains the benefit of an interim moratorium from the time the court issues the application
A sealed copy of the application will then need to be served on the relevant people (as listed in the Insolvency Act 1986) at least five days before the date of the hearing. The applicant must then file an affidavit at court confirming service at least one day before the hearing.
At the hearing, the court will make an order as it thinks appropriate, including an order winding up the company. A court will only make an Administration order in relation to a company if is satisfied that (a) that the company is or is likely to become unable to pay its debts, and (b) that the Administration order is reasonably likely to achieve the purpose of Administration.
Appointment by a qualifying floating charge holder
In order for a qualifying floating charge holder (“QFCH”) to appoint an Administrator, it must first give the holders of any senior qualifying floating charges at least two business days’ notice of its intention to do so. If there are one or more senior charges over the assets of the company, the QFCH must file a notice of intention to appoint Administrators to the company together

Show More