Business Debt Solutions- Administration / Pre-Pack Administration
Administration and Pre-Pack Administration are both formal insolvency processes that provide protection from creditor action and are designed to help struggling but potentially viable companies survive and restructure.
Although governed by the same best practice, Administration and Pre-Pack Administration differ in one key area. With an Administration the Administrator (Licensed Insolvency Practitioner) commence marketing the business for sale after their appointment.
With a Pre-Pack Administration the sale of the business and assets of the company are negotiated prior to the appointment of the Administrator. The Pre-Pack Administration then completes upon or shortly after the appointment of the Administrator.
Usually it takes one to four weeks from initial engagement to complete the Administration or Pre-Pack Administration process dependent on the complexity of your business.
At Orchard Debt Solutions we work with a panel of Insolvency Practitioners and the most suitable IP will be selected for your circumstances. We will work closely with yourself and the IP to ensure the process is hassle free from start to finish.
The plus points of Administration is the ability to continue trading and give breathing space to plan for survival. It also gives protection against creditors that are considering taking action that is at the detriment of other creditors or threatens the future existence of the company.
Administration is an opportunity for the company to be restructured and allows time for inefficient and parts of the business that are non-profitable or trade poorly to be removed.
Making these changes could be all that’s required for the company to succeed and thrive going forward. Although there are positives there are also negatives and it will be advertised that the company has entered into Administration.
This can damage the reputation of the business with customers and suppliers as it shows the company is insolvent.
During the Administration process the Directors also lose control of the daily activities of the business as the Administrators take temporary charge.
Entering the Administration process is a powerful and useful insolvency tool but the circumstances must be right. A Licensed Insolvency Practitioner would need to ensure that Administration is the most appropriate solution for all parties and meets required guidelines.
A Pre-Pack Administration allows the company to be sold to the existing or new Directors prior to the appointment of the Administrator and enables the recovery of the business whilst giving protection from creditors.
The appointed Insolvency Practitioner is the most appropriate person to choose a buyer for the assets. Be this the existing directors of the insolvent company or a third party.
The Pre-Pack Administration can ensure that the company survives and allows the migration of staff and customers across to the newco. Under certain circumstances the Pre-Pack Administration will allow the newco to use the oldco’s trading name (subject to Court approval) and can permit the use of the oldco’s premises.
Assets are sold to the newco at in situ market value along with the brand, intangible assets and goodwill. This will ensure that the process is seamless thus minimising business disruption and reputational damage.
Many creditors believe that a pre-pack administration would serve only to benefit the newco by allowing it to carry on trading, apparently unencumbered with its previous debt.
However, this is not necessarily the case, and the use of a pre-pack administration is often an effective way to give a better return to creditors and save viable aspects of a company simultaneously.
- Your company is protected against legal actions from creditors.
- If your company is viable, it can usually avoid being liquidated.
- You can still propose a CVA whilst in administration.
- Entering into adminstration means giving up control of your business.
- The administration process can cost your companya significant amount
- Administrations is public and publicised in The Gazette