Corporate Recovery Advice
Formal Insolvency Appointments
Administration
A company may be placed into Administration out of court by:-
- Debenture holders with qualifying and enforceable floating charges.
- The company or its directors.
and by order of the court upon the petition of:
- Any creditor.
- The company’s Liquidator.
- A Supervisor and Company Voluntary Arrangement.
- The company, its shareholders or its directors.
The statutory purposes for the appointment of an Administrator must correspond to a hierarchy of three objectives:
- Rescuing the company as a going concern (not simply its business).
- Achieving a better result for the company's creditors than would be likely if the company were wound up.
- Realising property in order to make a distribution to one or more secured or preferential creditors.
The advantages of this process are:
- The Administration Order allows the company breathing space to carry out any necessary restructuring or sale. This could involve the promotion of a Company Voluntary Arrangement or sale of the business.
- The directors can initiate the process themselves and can petition for the Administration Order.
- The Administrator acts in the best interests of all creditors generally.
- Creditors may not repossess any of the company’s property without the leave of the court or the Administrator.
The deal will be agreed before the Insolvency Practitioner is appointed but will be executed shortly thereafter.
A Pre-Pack is generally associated with Administrations and in short is a seamless transaction ensuring the smooth handover of a business' ownership with minimal disruption to its ability to maintain ongoing operations.
Pre-packs are appropriate in certain circumstances, including:
- Situations involving customer sensitivity (such as a deposit taking business);
- A business where the likely diminution of market share will inevitably result from any trading on in Administration (such as contract hire).
- If it is likely that the trading loss will exceed the enhanced value of assets.
- Where there is over reliance on a major customer.
- Where the asset base is all encumbered leaving no free assets with which to trade.
- If the company has received an offer which is too good to turn down.
Good practices are also recognised or enshrined in Statement of Insolvency Practice 16 and include:
- The importance of the demonstrable premium (effectively the price paid by the purchaser over and above the market value in return for exclusivity).
- Agent's input.
- Consultation with key creditors and other stakeholders.
- Open market advertising (albeit often on a no names basis).
- Prompt notification to creditors including justification for the sale by way of a Pre-Pack.
- Evidence of why trading was not possible.
Geoffrey Martin & Co. LEEDS T. 0113 244 5141 LONDON T. 0207 495 1100 E. info@geoffreymartin.co.uk