David Kirk explains who the decision-makers are at the outset.

An administrator can be appointed by:

• the board of directors of a company taking a majority decision
• the shareholders of a company at a general meeting
• a qualifying floating charge holder – meaning a debenture holder, usually a bank
• a creditor applying to the court (because they haven't been paid)
• the supervisor of a company voluntary arrangement

The administrator must give their written consent to act, and they must be a licensed insolvency practitioner.

Majority vote by directors

The most common route to appointing an administrator is when the board of directors calls a meeting and votes by a majority to go into administration. It is important to note that no creditor or shareholder approval is needed for this. A meeting can be called by the directors at very short notice, so this route is quick.

Shareholders agree to appoint an administrator

Alternatively, the shareholders of a company can meet and decide that they need to appoint an administrator. However, this is usually a slower process, because 14 days’ notice of the meeting will need to be given to all shareholders, unless 90 per cent or more agree in writing to short notice.

Once the decision has been made, the necessary documents are filed in court and notice is served on the qualifying floating charge (QFC) holder as appropriate. The QFC holder has five days in which to appoint their own choice of administrator. Once the five-day period has lapsed, if the QFC holder consents – of if there is no QFC holder – the necessary appointment documents can be filed and then the company is in administration. No consent of the court is needed.

Application to the court

If a winding up petition has already been issued, the application to appoint an administrator by the directors or company must be made to the court, and there will be a court hearing to decide if this should happen. 

Usually, the application to appoint an administrator is heard on the same day as the winding up hearing. The court will then decide whether to grant the administration order, place the company into compulsory liquidation, or possibly adjourn the hearing.

Debenture holders’ rights

If there is a debenture on the company, the lender has the right to appoint an administrator of their choice, should the company default on its loans or obligations. The debenture holder is often the company’s bank or factoring provider.

If the company wishes to appoint their own choice of administrator, the debenture holder must be given five business days’ notice. The debenture holder retains the right to block this appointment and make their own choice.

Many of the banks have bank panel limits. This means that if the debt is above a certain level, they will insist that the company uses one of their own ‘panel’ chosen licensed IP firms. Banks often set this limit at around £250,000 of borrowing. Below that level they will not usually object to the company’s choice of administrator.

Beneficial time frames of administration

One important benefit of administration is the speed at which an administrator can be appointed. Liquidation can take over two weeks, but administration can be on the same day, subject to the conditions previously mentioned.

This can be important for gaining control of a company and its assets, and stopping any legal action. It also means that the administrator can take control of the employees. A viable business can be sold very quickly, as the administrator has the power to do that if it is in the interest of creditors as a whole.

In some cases, the administrator will sell the business in the first few days of appointment in a sale that has been lined up beforehand (a pre-pack administration).

There are several ways an administrator can be appointed, but it’s important to remember that each company’s situation is unique, and the method of appointing an administrator will vary. It’s essential to get early, professional advice if your company is facing financial difficulties. 

About the author

David Kirk is a chartered accountant and licensed insolvency practitioner based in the south west. Follow @kirksinsolvency, or visit www.kirks.co.uk.

See also

You can find appointment of administrators notices, which first appear in The Gazette, via notice code 2410. We can also send this information to you via our data service.