Company Options - Formal Arrangements - Administration
Administration is a formal procedure which can be entered into by the directors or the company with the aim of rescuing either the whole or part of a business, or for the purposes of securing a better return to the company's creditors by preserving the value of certain assets.
Administration can be a beneficial business rescue procedure to assist a company in difficulties to receive breathing space so that it can assess how best to deal with its financial problems. A key advantage is that it is fast – an administrator can be appointed by the directors through a simple out-of-court procedure (provided certain conditions are met such as consent from any qualifying floating charge-holder). In addition following the appointment, a moratorium commences which suspends the power of creditors to take actions.
Once appointed, the administrator takes control and the directors’ powers cease. This is an important distinction between an administration and a CVA – in a CVA the directors remain in control. The administrator will prepare proposals within 8 weeks and if a meeting is held, acceptance or rejection of the administrator’s proposals is normally decided by a voting majority.
Commentary |
|
There were 13 administrations in Northern Ireland in 2017, compared to 31 in 2016.
This is a reflection of the improvement in the economic climate as well as the banks being more prepared to work through distressed cases without the requirement for a formal insolvency procedures. |
Prepacks
A ‘prepack’ is a deal for the sale of an insolvent company’s business and assets which is agreed before the company goes into a formal insolvency process, usually administration.
In today’s world, once a company’s potential difficulties become public knowledge, it becomes much harder to retain the value and goodwill in that business with key suppliers, customers and employees often leaving.
In a ‘prepack’ scenario, a deal can be completed quickly with the IP negotiating the best price for the business with the aim of securing a better return for creditors.
Commentary |
|
Prepacks have been the subject of much criticism in recent years and the Government and the insolvency profession have introduced very strict rules and parameters which now apply to prepacks, particularly where the business is sold to connected parties.
These procedures include guidance in the form of Statement of Insolvency Practice 16 (SIP16) and the requirements of IPs to use where possible the 'Prepack Pool' (an independent body) to revie prepack proposals.
The Government has also annouced a full review of prepacks to connects parties and this is expected in 2019. We expect that this review will make it mandatory for all connected party prepacks to be referred to the 'Prepack Pool'. |
Back to: The Options
Back to: Guide to Business Rescue and the Insolvency Process - Overview
A PDF version of the full 'Guide to Business Resuce and the Insolvency Process' is available to download here.
Whilst every effort has been made by CavanaghKelly to ensure the accuracy of the information here, it cannot be guaranteed and neither CavanaghKelly nor any related entity shall have liability to any person who relies on the information herein. Information given here is for guidance only. Detailed professional advice should be taken before acting on any information contained herein. If having read the guidance here, you would like to discuss further; a member of our team would be pleased to help you.