Administration is a procedure which protects the company against creditor action whilst a solution can be found.
Saving your business
Administration creates a freezing process called a “moratorium” which stops creditors from taking serious action against your company i.e. winding up orders. This is a court driven process which can be instigated by directors or shareholders of a company to protect it, whilst a suitable way forward for the company is found. Equally, creditors including debenture holders can also instigate this process.
The administration must have a purpose as set out in law and other insolvency procedures i.e CVA or liquidation may be used after the administration has ended.
Making the business viable again
Once an administration order is granted, the appointed Insolvency Practitioner(s) will take on responsibility for the day-to-day running of the business. They will try to save the business, or part of it, and prevent any further deterioration in the company’s financial position. This may involve making redundancies and other cost savings, so it becomes viable again. The downside is the directors will no longer be in control of the day to day management.
What is a prepack?
A pre pack administration is where a company goes through a formal marketing process prior to administration and has a pre arranged sale agreed, before appointing administrators to facilitate the same. This can be to the existing management team or to a third party. The agreed sale will be put to a prepack pool advisor who will comment on whether or not the sale should proceed.
There has historically been a lot of criticism over the pre pack process. As a result, the sale process is subject to rigid guidelines which must be strictly adhered to. This requires the full guidance of a qualified insolvency practitioner, to ensure a fair price is obtained for the business and assets achieving the best possible return to creditors.