What is administration and pre-pack administration?
Administration is a business rescue tool governed by the Insolvency Act 1986 (the “Act”). It provides an insolvent company with a period of statutory protection from creditors, allowing the Administrator, working with the directors, time to formulate a strategy going forward. Getting the company into Administration does not require an application to Court and can be done very quickly, thereby getting early protection from pressing creditors. The objectives of the Administration are laid down in the Act and can include the rescue of the company as a going concern or the sale of the company’s business and assets.
A Pre Packaged Administration (“Pre-Pack”) is an arrangement under which the sale of all the business and assets is negotiated with a purchaser (who can be a third party or the existing management team, or a combination of both0 prior to the appointment of Administrators, and the Administrators effect the sale immediately on, or shortly after their appointment. Such a Pre-Pack Sale does not require the approval of the court or the creditors although there are safeguards in place to ensure that such a sale is both legal and transparent. Done properly, the process gives continuity and maintains the value in the business, as well as preserving jobs.
Embarking upon an Administration is a big step for any board of directors, no matter what the size of the company’s operations. As the process involves the transfer of full executive powers to an Administrator, it is essential that the strategy is fully understood at the outset and capable of implementation. Accordingly, prior to formal appointment, we shall have fully explained to the directors all available options and likely outcomes. Quite often, before entering into Administration, it will be necessary for us to assist in the preparation and fully interrogate short-term profit and loss and cash-flow projections. In addition, we will carefully explain the law surrounding this procedure and how it impacts on all stakeholders. We will assist the directors at meetings with secured lenders whose support for the process is often necessary at the initial stages.
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