Administration and Pre Pack Administration UK

Insolvency Administration: Your Options

Administration is an insolvency process which is an alternative to company liquidation. Governed by the Insolvency Act 1986, administration, and pre pack administration, can be considered a form of business rescue tool, providing insolvent companies with a period of statutory protection from creditors whilst the administrator and directors work together to form a strategy to take matters forward with the best outcome possible.

If your company is facing financial difficulties then administration, or pre pack administration, may be the right option for you. However, there are alternatives to explore, which is why it is important to take tailored advice from a licensed insolvency practitioner who will guide you through your choices and explain the pros and cons of each.

If, however, your company is facing the prospect of being unable to continue trading, perhaps because critical support has been withdrawn or there is a threat of a winding-up petition, then administration may be the way forward.

What is the Difference Between Administration and Pre-pack Administration?

Administration involves the running of an insolvent company being transferred to a licensed insolvency practitioner. Acting as administrator, the practitioner assumes responsibility for the management of the company whilst they put a plan in place to take it forward.

Administration gives an insolvent company valuable time and protection to get the business on an even keel without the threat of creditor pressure or winding-up action.

Once in administration, a company cannot be targeted with legal action by creditors or landlords. Bailiffs are not permitted to seize any assets, and asset-based lenders or hire purchase companies are not allowed to repossess company property, unless the administrator gives them permission.

Administration can be very effective, but only when it is deemed the best solution for the business, its creditors, and any other parties involved.

Administration must achieve one of three statutory purposes:

  1. To rescue the company as a going concern
  2. To achieve a more beneficial result for creditors than winding up and liquidation
  3. If the first two are not possible, to realise any property or substantial assets so as to make a distribution to secured and/or preferential creditors

If none of these objectives can be met, then an insolvency practitioner will suggest alternative solutions, which may be more appropriate.

Pre-pack administration is a form of administration which involves negotiating the sale of an insolvent company and any assets prior to the administrators being appointed. The sale of the business will complete upon or just after the appointment. This differs from standard administration, where the business is marketed for sale by the administrators once they have been appointed.

A pre pack administration can either involve selling the business to a third party buyer or, alternatively, selling it to the existing directors operating under a new company (‘newco’). The newco would need to be viable and have funding in place in order to buy the assets of the old company (‘oldco’) at a fair value.

One of the benefits of a pre pack administration UK wide is the seamless transition between old and new owners. With a sale agreed in advance, there is little disruption to trade, and customers and employees generally remain unaffected.

Anything to consider for administration or pre pack administration?

It is not possible to proceed with a pre-pack administration in the UK if a winding-up petition has already been issued. It is also important to consider how current customers, suppliers and creditors would feel about dealing with a potential newco. Suppliers for example may have suffered a financial loss following the sale of the business, and customers may be wary of dealing with a new supplier.

Neither administration, nor pre pack administration, require the approval of the court or creditors. With pre-pack administration, however, 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.

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How does the administration process work?

There are two main processes by which a company can be placed into administration. Firstly, it could be done voluntarily by the directors or shareholders. The second option is for secured lenders to appoint administrators through the courts.

Whatever way, a licensed insolvency practitioner must be appointed by law to act as administrator. They take over the running of the company, with the aim to either rescue the company as a going concern, arrange a sale to a connected or unconnected buyer, or optimise creditor returns.

In the case of voluntary administration, the company’s directors are permitted to appoint an insolvency practitioner of their own choosing to act as administrator. However, in situations where the company is forced into administration by a lender, the court generally appoints the administrator, which will usually be the lender’s preferred insolvency practitioner.

How can Insolvency Online help with administration and pre pack administration?

Insolvency Online is a respected firm of licensed insolvency practitioners. We are authorised by law to act in the capacity of official administrator.

Embarking on administration or pre-pack administration is a big step for any board of directors, no matter the size of the company. As the process involves the transfer of full executive, it is essential that the strategy is fully understood at the outset and capable of implementation.

Accordingly, prior to formal appointment, we will 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. Sometimes, we will assist the directors at meetings with secured lenders whose support for the process is often necessary at the initial stages.

In cases where an early sale of the company’s business and assets is envisaged, we will be recommending to the board the appointment of professional agents with whom we have worked in the past, in order to drive forward the sales process. Throughout this period, we will provide advice on an ad hoc basis to the company, including creditor negotiation where necessary.

Of all the formal insolvency procedures, time is of the essence in the setting up of any successful administration or pre pack administration. At Insolvency Online, we will provide you with a free confidential consultation with one of our licensed insolvency practitioners at a convenient time and location.

Administration and Pre Pack Administration UK

Our financial recovery and insolvency services for businesses and individuals

Insolvency Online offers a solution-finding approach to business rescue, personal financial challenges, and financial restructuring and recovery. We also help solvent business owners seeking to make use of Business Asset Disposal Relief. If we can assist you in any way, please do not hesitate to get in touch.

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Frequently Asked Questions

What are the alternatives to pre-pack administration?

In the UK, pre pack administration is not always the best option. Sometimes, a Company Voluntary Arrangement would be more suitable, or it might by that a Creditors’ Voluntary Liquidation would work best in the circumstances. A trade sale or refinancing should also be explored as alternatives.

Under Statements of Insolvency Practice 16 (SIP 16), creditors must be informed as to the reasons why an administrator decided on a pre-pack sale. This means that all alternatives must be explored before proceeding with this option.

What is the difference between administration and liquidation?

Whilst liquidation and administration are both formal insolvency procedures, they are very different.

Liquidation is the process by which a company is shut down and has its name removed permanently from the Companies House register. Whilst solvent companies can be liquidated via a Members’ Voluntary Liquidation, liquidation is more commonly used to bring an insolvent company to an end. Insolvent liquidation is achieved courtesy of a Creditors’ Voluntary Liquidation.

Liquidation will always mean the end of a company. Administration, however, does not necessarily end that way. Instead, it provides the breathing space and legal protection required to get a plan in place to move forward. Companies entering administration will generally have a realistic chance of a successful rescue, whereas companies entering insolvent liquidation will not.

What happens to employees during administration or pre pack administration?

When an administrator assumes control of a company, this also includes the temporary adoption of any employees of the business during the period of administration. After 14 days, the administrators automatically take on the employment contracts of everyone who works for the company.

What is more important to employees is how the company exits administration. Because administration is more of a holding stage, the company will at some point need to leave the process. This may involve continuing trading under the current owners; selling the business to new owners, or entering into an alternative insolvency procedure.

When a company is sold through a pre pack administration, UK employment contracts automatically transfer to the new company via TUPE (Transfer of Undertakings (Protection of Employment). This means that all existing employees retain their current terms and conditions of employment, including length of service.

Other exit strategies may be less certain for employees. In some situations, workers may be able to claim redundancy. The appointed insolvency practitioner will provide full guidance at the time and in line with the specific circumstances.

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For a free, confidential consultation to discover how our insolvency practitioners can assist you with administration or pre-pack administration, you are welcome to get in touch.