What is an Administration and what does it do?

If you have been keeping up with the news in recent years, you would have noticed a number of Administrations taking the spotlight. Among them, prominent brands such as Debenhams, Paperchase and most recently Wilko’s have all entered into an insolvency process known as Administration.

But what is an Administration? And most importantly, what is an Administrator trying to achieve?

The Administration Process

In Administration, a Licensed Insolvency Practitioner is put in office to assist the company in formulating a potential rescue strategy. The Administrator will undertake a review of the company’s assets and liabilities, including its workforce. This review typically leads to one of three courses of action:

1. In some cases, a deal for the business and assets of the company can be agreed prior to the appointment of the Administrator. This is known as a ‘Pre-Pack’. The sale is then completed within hours of the company entering into Administration. This is normally carried out when a break in trade or Administration of the business would reduce the company’s value. Opting for a Pre-Pack allows the business and/or its assets to be held at a higher valuation. The result is an increased return to the company’s creditors.
2. The Administrator may choose to continue to trade the business for a period of time. Throughout the time, a buyer for the business will be actively sought.
3. If neither of the above can be achieved a closing down sale will take place. This is done so with the intention of maximising the return to creditors.

If a successful business sale is achieved, it would also involve transferring employees’ contracts, thus saving jobs whilst protecting the employment rights of the employees.

It is a statutory duty for the Administrator to investigate the reasons for the demise of the business as well as Director conduct. Therefore, it’s important that Directors understand their duties and responsibilities. Especially in the circumstance that a company is facing insolvency. To mitigate risks in this regard, seeking advice early on is key.

Westcotts

Although Administration doesn’t always guarantee company survival, it does provide breathing space for rescue plans to be evaluated and implemented. Is your company facing difficulties and you’re looking for advice? Please do not hesitate to get in contact with our Business Recovery & Insolvency team at Westcotts. Call 01392 288555 for expert professional advice and competitive quotes.