Administration/Pre-Packs
The administration process may be the best way to preserve the value of your company, and to protect your employees. This is a useful insolvency tool that can provide you with an outcome that saves your business. This process also facilitates the ability to sell the business and/or it’s assets before the Company is placed into Administration, this process is called a pre-pack.
What is administration?
Administration is one of the three main types of corporate insolvency procedures in the UK (alongside liquidation or company voluntary arrangements) and is intended to support business rescue. As with any insolvency procedure, the main aim is to act in the best interests of creditors.
The administration process creates a legal stay (or moratorium) against action by creditors. This can give companies time in which to develop further proposals aimed at satisfying creditors and returning the company to a position of viability. Since the Enterprise Act 2002, most court hearings can be avoided, making administration a more cost effective and accessible method.
How does administration work?
A company’s directors or its creditors may apply to court to place a company into administration if it is insolvent. A company is insolvent if it cannot pay its debts when they are due, or if its liabilities outweigh its assets.
When in an administration, a licensed insolvency practitioner will manage the insolvent company’s affairs, business and property.
Whilst the company is in administration, creditors are prevented from taking any actions against it except with the permission of the court.
An administration is only ever a temporary state of affairs: in England and Wales, administrations have a statutory length of 12 months, although this can be extended if necessary with the agreement of creditors, or the permission of the court. They can also last for under 12 months if the administrator judges that there is no need for the administration to last any longer, provided that creditors agree.
The aim of a pre-pack administration is to minimise the impact of insolvency on the company’s employees, creditors, and other stakeholders. In most cases, the company’s assets are sold to allow the business to continue to operate. It is designed to have a better outcome than Liquidation.
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