Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is one role of the floating charge holder regarding administrator appointment?

1. Only they can appoint a liquidator

2. They can determine the repayment order of debts

3. They can petition the court for administration

4. They can appoint an administrator

The correct answer is: They can appoint an administrator

The role of the floating charge holder in the context of administration is significant because they can indeed appoint an administrator. A floating charge is a security interest over a pool of assets that can change over time, and the floating charge holder typically has certain rights and privileges in the event of the borrower's financial distress. When a company enters administration, the purpose is to rescue the company, maximize the return to creditors, or realize assets. The floating charge holder has the authority to appoint an administrator without the need for a court order. This ability allows them to take proactive steps to protect their interests when they believe that the financial position of the borrower is deteriorating. The appointment of an administrator is an essential action as it can lead to restructuring or a controlled sale of the company’s assets. The other roles and capabilities of creditors, such as petitioning the court for administration or determining the repayment order of debts, do not specifically grant the same powers to only the floating charge holder as the appointment of an administrator does. This highlights the unique standing that floating charge holders have in the administration process.