When a company is insolvent it may enter administration. The process provides the company with protection from hostile creditors, who cannot disturb the business or recover any of your assets without the permission of the court.
There are three statutory purposes of Administration:
- Rescuing the company as a going concern. (Note: this purpose is to rescue the company as opposed to rescuing the business undertaken by the company.)
- Or, achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration).
- Or, realising property to make a distribution to one or more secured or preferential creditors.
Benefits of an Administration include:
- Ability to act quickly in order to preserve business value
- Potential to continue trading the company
- Preservation of key customer and supplier relationships
- Stay on legal proceedings
- Typically enhanced realisations to creditors compared to Liquidation
- Preservation of jobs
Pre Pack Administration
A ‘pre pack’ administration is a legal way of selling the business of a company onto a third party or to existing directors or management acting under a new company.
A ‘pre-pack’ (pre-packaged sale) refers to an arrangement under which the sale of all or part of a company’s business or assets is negotiated with a purchaser prior to the appointment of an Insolvency Practitioner as Administrator. The sale will be effected by the Insolvency Practitioner shortly after their appointment.
This option can often result in the best outcome for creditors as the costs of the Administration process are usually lower than those should the Company be traded during the Administration process.
As the process does not interrupt business operations it preserves the value of the business and assets of the company, maximising realisations for the benefit of creditors. In addition, it can help to preserve the business of the failed company, thereby saving jobs.