Administration and Pre Pack Administration
Administration
When a company becomes insolvent, it may enter Administration. This process provides the company with protection from creditor action while a licensed Insolvency Practitioner takes control of the business and assesses the best way forward. During administration, creditors are generally prevented from taking legal action or recovering assets without the permission of the court.
Administration has three statutory purposes:
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Rescuing the company as a going concern
(This refers to saving the company itself, rather than simply the business carried out by the company.) -
Achieving a better result for creditors as a whole than would likely be achieved if the company were placed directly into liquidation.
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Realising the company’s assets in order to make a distribution to one or more secured or preferential creditors
Licensed Insolvency Practitioners are appointed as Administrators and take responsibility for the day-to-day control and management of the company during the process.
Key benefits of Administration can include:
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The ability to act quickly to preserve the value of the business
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Potential to continue trading while options are explored
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Protection from creditor action during the administration period
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Preservation of customer and supplier relationships
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Often better returns for creditors compared to immediate liquidation
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The potential to preserve employment and jobs
Pre Pack Administration
A Pre-Pack Administration (often referred to as a “pre-pack”) is a process where the sale of a company’s business and assets is arranged prior to the appointment of an Administrator, with the transaction completed shortly after the Administrator is formally appointed.
The sale may be made to:
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An independent third party, or
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The existing directors or management through a new company structure.
Because the sale is arranged in advance, the process can often minimise disruption to the business, allowing operations to continue and helping preserve the value of the company’s assets.
In many cases, a pre-pack administration can provide a better outcome for creditors, as the costs involved are typically lower than if the company continued trading for an extended period during administration.
The approach can also help protect the underlying business and preserve employment, even where the original company cannot continue.
The appointed Administrator must carefully consider the proposed sale and ensure that it represents the best available outcome for creditors, in accordance with Statement of Insolvency Practice (SIP) 16.