Administration is a useful tool to help save part or all of a business. It is typically instigated by Directors or Shareholders, but can also be at the request of a creditor or debenture holder, usually a Bank. Administration is used when a company is insolvent and maybe facing serious threats from creditors. It offers a degree of protection from creditors, but it must be entered into with a purpose.
Administration can be used to trade a business with a view to restructuring and saving it. Failing this, an Administrator might look to sell the business to existing management or a third party. Finally, the Administrator can use the procedure to maximise asset realisations, producing a better return to creditors.
The main advantages of Administration are:
- Immediate protection from any legal action being taken by creditors
- Potential to rescue or sell the business, saving jobs
- The company is being handled by a Licenced Insolvency Practitioner who has a duty to creditors as a whole.
- The return to creditors is often more than in an alternative, such as Liquidation
A pre-pack Administration is essentially what it says on the tin. It pre-packs the business to a trade buyer, third party or existing management operating under a new company. The business is sold immediately or shortly after the company is placed into Administration.
There has been a lot of negative reports in the media about ‘pre-packs’, but used in the correct way, it is a useful tool in potentially saving jobs and ongoing trade.
The main advantages of a ‘pre-pack’ Administration are:
- Provides uninterrupted business trade
- Saves jobs
- Contracts with customers can be completed
- Maximising return for creditors from an insolvent company