Over our years of working within insolvency, we have been asked many questions by directors looking to protect their company when financial difficulties have arisen. When designing this website, we thought that it would be best to summarise those queries that have been raised most frequently. If you have a question that you would like to ask, please contact us. We will be happy to reply to you directly and keep this page updated.
What is an Administration ?
The process is designed to hold a business together whilst plans are drawn up to put in place a restructuring to rescue the company, or to sell the business and assets to give a better outcome for creditors than a Liquidation. Finally, if neither of the above objectives are possible, then it can be used to realise assets for the benefit of secured or preferential creditors.
Who can appoint an Administrator ?
There are several routes into Administration. The company, its directors, or secured and unsecured creditors can ask the Court to appoint an Administrator. Alternatively, in some circumstances, the directors or a creditor with a floating charge can appoint an Administrator by simply filing documents at Court.
If there is a Court application, what has to be proven ?
The company should be insolvent, unless the application is made by a floating charge creditor and the IP who is the proposed Administrator should provide a statement that the purpose of Administration is likely to be achieved.
What happens once the Administration starts ?
The Administrator takes over control and management of the company from its directors. The directors retain some duties, but they are generally limited to the filing of documents.
It is the Administrator’s job to put forward a proposal to creditors (put not necessarily a proposal for a CVA) for how the company will move forward.
Can a creditor take action against the company once it’s in Administration ?
Not without the consent of the Administrator or the agreement of the Court. Generally, no action will be allowed to be taken.
What happens at the end of the Administration ?
If all assets have been realised and the monies distributed, the Administrator can have the company dissolved and removed from the register at Companies House. Otherwise it is possible for a company to proceed into Liquidation (CVL or Compulsory) or propose a CVA.
So, can an Administrator pay monies to unsecured creditors ?
Not without the permission of the Court. This will be given if the Administrator can prove that there is a benefit in doing so. Otherwise Liquidation or a CVA are used to pay dividends.
How is a “pre pack” Administration different to an ordinary Administration ?
It is the same procedure. The term is used to describe the situation where the negotiations to sell a business take place before the company goes into Administration. The sale is completed by the Administrator once they are appointed.
Why would directors want to do a pre pack ?
A pre pack Administration can be the best way to preserve value in a business that can’t easily be traded by an Administrator. It can also reduce costs substantially where the Administrator’s staff don’t have to be involved in the day to day running of the company.
What happens prior to a pre pack ?
The IP who is intended to be the Administrator is usually engaged by the directors for some weeks before the Administration. During that time interested parties will be researched, a sales pack is prepared and negotiations take place. The process is still quite quick relative to any other business sale.
Can the directors bid to buy back a business through a pre pack ?
Yes. It is the duty of the IP / Administrator to decide what the best deal for the company is and, if that is put forward by the directors, there is absolutely no reason why they should not be the purchaser.
Do creditors lose out in a pre pack ?
Not necessarily, but as with most insolvency processes there is a clear risk that creditors won’t be paid due to a company’s financial situation. An Administrator is obliged to give creditors a detailed explanation and justification of why a sale has been undertaken as a pre pack, especially where the purchaser is connected to the directors of the failed company.
Something we’ve not covered yet ? Send us a query via our contact page and we’ll answer you and add it to this section too.