Administration vs Pre Pack Administration

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Updated: 9th September 2021

Understanding administration and pre-pack administration

If your company is in debt and being pressured by creditors, or being threatened with legal action and/or a winding up petition, an administration order could halt any actions being taken against the business. It gives you a last-ditch attempt for recovery.

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Any upfront quotes for Pre Pack Administrations by Insolvency Practitioners can be unreliable as your business will need to be professionally valued to establish an accurate purchase price. 

Understanding the Administration Process

An administrator may be appointed by;

  • Any creditor via an application to the court
  • The holder of a Qualifying Floating Charge (QFC) i.e. the bank

  • The company or its directors

If an administrator is appointed by a creditor (via court) or via a QFC, then the director(s) will not have a choice as to which administrator is used.

If the company or director(s) appoints an administrator, then you are free to choose who you wish.

Before accepting an appointment as administrator, an insolvency practitioner must ensure that he/she will achieve at least one of the following purposes;

  • To rescue the company as a going concern

  • If this is not possible, to achieve a better result for the company’s creditors as a whole than would be obtained if the company was wound up (without first being in administration)

  • If neither of the above objectives are possible, realising property in order to make a distribution to one or more secured or preferential creditors

  • If survival in its current form is not possible, the administrator will look to sell the company assets either by trading the company whilst marketing the sale, or by ceasing to trade immediately and then selling the assets.

A Pre-Pack Administration

A Pre-Pack administration is the most well-known procedure due to a lot of media coverage. The process is still governed by the same rules however, a buyer is found prior to the company being placed into administration, with the sale being concluded upon appointment.

The purpose of a Pre-Pack administration is to ensure continuation of trade by transferring any on-going contracts to the purchasing company (which can be owned by the same directors); and ensuring that the employees are transferred to the purchasing company as part of the sale.

This is the usual way an administration is achieved as it is the best way to rescue the business as a going concern.

Certain sections of the media sometimes describe a Pre-Pack Administration as a covert or underhand sale back to a company run by the same directors however; any sale during an administration/or Pre-Pack Administration is subject to clear regulations, which set out the process to be followed and the information to be provided to company creditors.

What Happens Once the Administrator is Appointed?

Once appointed, the administrator has a number of duties which must be fulfilled in addition to ensuring a sale of the business assets.

One of these duties is to notify company creditors of the appointment. The administrator also needs to immediately advise creditors of the sale strategy, if the procedure is by way of a Pre-Pack Administration.

They then have a maximum of 8 weeks following the appointment in which to prepare and send creditors the proposals for achieving the purpose of the administration. A meeting is then held with the company creditors within 10 weeks of appointment unless no distribution is going to be available to unsecured creditors.

Within a period of 12 months following appointment, the administration has to be concluded, unless an extension is granted by the court.

Is An Administration The Best Procedure For My Company?

When your firm is struggling financially, it is quite understandable that you may not know which way to turn. Here at Real Business Rescue, we aim to give you the best possible advice as to which procedure will be best suited to your company’s individual circumstances. 

As discussed above, an administration process is a powerful and useful tool as long as the conditions are right.  Following a free initial consultation with us, a Company Voluntary Arrangement or Liquidation (see our separate guides on each procedure for a summary of what is involved) may well be the correct way forward; but until we speak to you we won’t know!

Julie Palmer

Regional Managing Partner

0800 644 6080
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