Your Guide to Administrations and Pre-Pack Administrations

We understand that financial difficulties can arise in any business, no matter its size or industry. When these challenges become insurmountable, Administration can be a valuable tool to help rescue and restructure a struggling company.

What is Administration?

Administration is a legal process designed to help financially distressed businesses overcome their financial challenges and potentially continue trading, safeguarding jobs and maximising returns for creditors. During administration, an insolvency practitioner takes control of the company’s affairs, with the goal of either:

Rescuing the Company: This involves restructuring the business, negotiating with creditors, and implementing a recovery plan to return the company to profitability.
Achieving a Better Outcome for Creditors: If rescuing the company isn’t feasible, the administration aims to achieve a higher return for creditors than would be possible in an immediate liquidation.
Realising Assets: In some cases, the company’s assets are sold off to repay creditors, followed by the company’s dissolution.

Key features of an Administration

Moratorium

Once the company enters administration, a moratorium is imposed, preventing creditors from taking legal actions against the company without the court’s permission. This allows the company time to develop a viable rescue plan.

Administrator's Role

The appointed administrator takes over the company’s operations and manages its affairs in the best interests of creditors as a whole.

Creditor Engagement

The administrator communicates with creditors and proposes a strategy that outlines how they plan to achieve the administration’s objectives.

What is a Pre-Pack Administration?

A pre-pack administration is a specific type of administration that involves negotiating the sale of a company’s assets before formally entering the administration process.

The sale is completed shortly after the company enters administration, often within days. This allows for a seamless transition of the business to new ownership, maintaining customer and supplier relationships.

Benefits of a Pre-Pack Administration

Speed and Continuity

Since the sale is negotiated in advance, the transition is swift, minimising disruption to the business’s operations and preserving its value.

Employee Retention

Pre-pack administrations often lead to higher employee retention rates, as the business’s operations continue without significant interruption.

Preserved Reputation

Maintaining continuity helps safeguard the company’s reputation, as customers and suppliers see a commitment to business stability.

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FAQs

Administrations:

What is an administration?

An administration is a formal insolvency process aimed at rescuing a financially distressed company, maximising returns for creditors, or realising assets. An insolvency practitioner takes control of the company’s affairs to achieve these objectives.

How is a company placed into administration?

A company can enter administration through a court order, the company directors, or secured creditors holding a qualifying floating charge. The process involves appointing a licensed insolvency practitioner as the administrator.

What is the role of the administrator?

The administrator’s role is to manage the company’s affairs, either to rescue the business, achieve a better outcome for creditors, or realise assets. They work in the best interests of creditors as a whole.

What is the moratorium period in administration?

The moratorium is a legal protection that prevents creditors from taking legal action against the company without the court’s permission. It allows the company breathing space to devise a rescue plan.

How does administration affect employees?

During administration, employees’ rights are protected, and the administrator can either continue trading with the existing workforce or make necessary staff changes.

Pre-Pack Administrations:

What is a pre-pack administration?

A pre-pack administration involves negotiating the sale of a company’s assets before officially entering administration. The sale is completed shortly after entering administration, ensuring business continuity.

Why opt for a pre-pack administration?

Pre-packs offer a swift transition, maintaining business continuity, preserving relationships with customers and suppliers, and often resulting in higher employee retention rates.

Are there any drawbacks to a pre-pack administration?

While pre-packs offer benefits, they can raise concerns about transparency, as the sale is often negotiated before other stakeholders are informed. This has led to efforts to improve disclosure and creditor involvement.

How is creditor approval obtained in a pre-pack administration?

Creditors’ approval isn’t usually required for the pre-pack sale itself. However, the administrator must provide a report to creditors explaining the reasons for the pre-pack sale and detailing their valuations and considerations.

Can the company's directors buy back the assets in a pre-pack?

In some cases, the existing directors may form a new company to purchase the assets. However, this must be done in compliance with legal and regulatory requirements to ensure fairness to creditors.

Transparency and Credibility

At Xeinadin, we pride ourselves on transparent communication and a client-centric approach. Our experienced insolvency practitioners will guide you through the intricacies of administrations and pre-pack administrations, ensuring you understand your rights, obligations, and potential outcomes.

If you’re facing financial difficulties or seeking advice on administrations and pre-pack administrations, don’t hesitate to get in touch with our expert team. We’re here to provide tailored solutions and help you make informed decisions during these challenging times.