Company Administration was first introduced by the Insolvency Act 1986 as a mechanism for protecting companies from their creditors while a restructuring plan is completed. The Administration mechanism was subject to significant changes after the introduction of the Enterprise Act of 2002 which allowed easier access to the process for companies in financial difficulty.

Company Administration can be sought by the company, its Directors or one of the creditors.

A company in administration may continue to trade while a plan is formulated to achieve one of the following:

 

• Rescuing a company as a going concern, 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 in order to make a distribution to one or more secured or preferential creditors.

 

Following on from the legal jargon it’s worth considering some practicalities. Experience shows that there is likely to be some form of business continuation after the Administration, whether it’s within the existing company or a different company.

The likelihood is that a company entering into Administration will either have its valuable assets sold on or leave Administration to go in to a Company Voluntary Arrangement (“CVA”).

The key cost to an Administration process is where the business continues to trade through Administration, not only incurring its operating costs but also the costs of the Administrator’s team.

This is one reason why the concept of a pre-packaged (“pre-pack”) sale has developed. The pre- pack sale is where an off-market sale is lined up prior to the start of the Administration process and then the Administrator is appointed to conduct the sale.

Any such sale must be approved by a professional valuation agent who should take into account all relevant factors in arriving at that valuation. This valuation is a cost of the Administration process.

Where the pre-pack has been questioned is where the sale of the assets is to a connected party rather than a third party. However it is worth noting that such a sale if conducted following the correct procedure does not fall foul of legislation.

Most sales of assets by an Administrator will involve the appointment of a solicitor to prepare the sale paperwork and this again is a cost of the Administration.

Related posts:

1. Pre Packs

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