What Is An Administration Order?

Overview Of A Company Administration Order

A company Administration Order is an order made on an application put before the Court for a company to be placed into Administration. It is known as the Appointment Of Administrator By Court as opposed to the ‘Out of Court’ appointment route, which is much more common.

Out Of Court Company Administration Appointment

For an Out of Court company Administration appointment the following needs to apply:

• The company needs to be insolvent.
• The appointment can be made by the company’s shareholders or directors.
• Notice period of two business days or more given to the holder of a qualifying floating charge or alternatively, they consent to the company going into Administration.

When Might A Company Administration Order Application Be Made?

A company Administration Order application can be made only in the following instances:

• When the purpose of an Administration is reasonably likely to be achieved; and
• When a company is insolvent.

What Are The Three Purposes Of Company Administration?

The purposes of Company Administration are set out in Schedule B1 paragraph 3 of the Insolvency Act 1986:

• Rescue the company as a going concern; or
• Achieve a better result for the company’s creditors than would otherwise be the case had it gone into insolvent liquidation
• Realise company property to enable the Administrator to make a distribution to the preferential or secured creditors

Who Can Make An Application For An Administration Order?

An application for a company Administration Order can be made by:

• The company
• The directors of the company
• A creditor of the company

A company Administration Order might be sought by a creditor for example. A creditor does not have the option to use the Out of Court process unless such a party holds a qualifying floating charge as defined in paragraph 14 of Schedule B1 of the Insolvency Act 1986.

In the case of Cargologicair Ltd, Re [2022] EWHC 3316 (Ch) an application for an Administration Order was made by a Director the company was subject to Russian sanctions pursuant to Russia (Sanctions) (EU Exit) Regulations 2019. 

Applying To Court For An Administration Order

When applying the Court will want to be satisfied one of the three purposes of Administration are reasonably likely to be achieved.

This requires it to be shown there is a real prospect the Order will achieve its purpose. There is no need to demonstrate that there is a greater than 50% chance that one of the three purposes of Administration will be achieved. In Cargologicair Ltd, Re [2022] EWHC 3316 (Ch) it was said:

The applicant needs only to show that there is a real prospect that the administration order will achieve its purpose and need not show a greater than 50 per cent chance that the purpose will be accomplished. Mr Al-Attar in his skeleton argument referred to the cases of Re AA Mutual International Insurance Co Ltd [2005] 2 BCLC 8 and Re European Directories BV [2010] EWHC 3472 (Ch)

Administration Order v Winding Up Order

A Court may be inclined to look favourably upon an Administration Order where it can in preference to a Winding Up Order because winding up a company is considered by most people to be the end of a company. Potential purchases of a business or its assets will often pay less for a company that is being wound up and put into Liquidation compared to Administration.

Risk Of Failing To Obtain An Administration Order

An Administration Order is an order of the Court. If the Court is not satisfied that the purposes of Administration do not have a real prospect of success then it will not grant the order so there is a risk the application will fail.

An example of such an application failing was in the case of Interactive Digital Systems Ltd v VST Enterprises Ltd [2021] EWHC 887 (Ch) referred to in the article How A Creditor Can Fail To Get An Administration Order.