Lucy McCann, of Brodies LLP, explains the best route to obtaining a company administration order.

Since Schedule B1 of the Insolvency Act 1986 came into force in 2002, a familiarity with, and understanding of, administration as a formal insolvency process has increased 

Between January and September 2014, administration was regularly used on both sides of the border, with 64 administrations in Scotland, and 1,338 in England and Wales. Though the number of administrations is falling when compared with the height of the credit crunch, administration as a restructuring tool is here to stay.

Which route is best?

The most common method of appointing an administrator is the out of court route, which can be instigated by the insolvent company, its directors, or the holder of a qualifying floating charge (QFCH). Its popularity is inextricably linked to its cost – it’s much cheaper to complete and file the out of court forms, meaning that the party seeking the appointment avoids the time and cost associated with a court application.

That said, court applications are sometimes unavoidable. For example, if a provisional liquidator has been appointed to a company, neither the company, its creditors, nor the QFCH, can use the out of court route to appoint an administrator. The only way in which an administrator can be appointed is by way of an application to court. 

In addition, if there are concerns about the QFCH’s right to appoint an administrator, or concerns about jurisdiction (ie Centre of Main Interest – COMI), then it may be advisable to seek the administrator’s appointment via the court process. The benefit in this is that the petitioner will have the security of knowing that any appointment made will be less likely to be the subject of a challenge, as the court will have satisfied itself that, in all the circumstances, it is appropriate to appointment of the administrator.

Conditions of applying through court

In Scotland, an application can be made to the Court of Session, or where the company’s paid up share capital is less than £120,000, the Sheriff Court where the company has its registered office.

Where an application is made to the court, as well as the information set out in the out of court route appointment forms, two further conditions apply. The court must be satisfied that:

• the company is, or is likely to become, unable to pay its debts
• the making of the order will achieve the purposes of administration, as set out in paragraph 3 of Schedule B1

Given these additional conditions, the petitioner should engage with the proposed insolvency practitioner early on to discuss the purpose of the administration, and the manner in which the purpose may be achieved.

Though the court application route takes longer than simply filing the relevant out of court forms, if there are concerns about assets being dissipated, or if there is a desire to bring the company under the immediate control of the proposed administrator to safeguard the business and assets, pending determination of the application, an interim manager, akin to a provisional liquidator, can be appointed by the court. 

While Schedule B1 applies throughout the UK, Scotland has its own distinct insolvency and court rules that govern the procedural aspects of administrations. Scottish legal advice should be taken in relation to the insolvency of Scottish companies to ensure that you don’t fall foul of these rules.

About the author

Lucy McCann is an associate in the business disputes and asset recovery team at Brodies LLP. For more information, visit Brodies LLP, or follow on Twitter @brodiesllp.