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Scotland Insolvency Advice including Company Administration and Pre-Pack Administration

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Updated: 4th April 2021

Understanding pre-pack administration in Scotland

Local Offices:

Aberdeen Office 01224 418 700 -  Office Details: Aberdeen Insolvency Practitioners
Dundee Office 01382 684 997 - Office Details: Dundee Insolvency Practitioners
Edinburgh Office 0131 203 3416 - Office Details: Edinburgh Insolvency Practitioners
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Inverness Office 01463 642 850 - Office Details: Inverness Insolvency Practitioners

Administration has been propelled into the limelight in recent years due to the large number of high-profile administrations on the high street and in sporting circles such as football clubs. In Scotland in particular, top clubs such as Rangers, Dundee, Dunfermline and Hearts have all been placed in administration to help them continue as businesses despite incurring large debts.

If your company is in financial distress, administration might also be an option for you. It often depends on how viable the business is going forward; this is a pivotal aspect that can determine whether administration is a preferred solution to liquidation where the business is no longer viable in the long-term.

If your company still has a viable future and a business model that can once again be successful after some restructuring, administration is a likely solution. In this instance, you would relinquish control of the company to a legally appointed administrator who would manage all the affairs of the business from the date of appointment.

At Real Business Rescue, our licensed insolvency practitioners have acted as administrators in hundreds of cases and have vast experience in finding the best resolution for all parties concerned.

The key responsibilities of an administrator are to:

  • Rescue the company as a ‘going concern', or

  • Look to secure a better result for creditors than would have been possible through a liquidation procedure, or

  • Realise any property as assets to ultimately make distribution payments to preferential creditors, often deemed secured or guaranteed creditors

Once the administrator takes charge of company affairs, any debts and interest charges due to unsecured creditors are immediately frozen. In a successful administration procedure, secured creditors would receive payment of the money owed to them and the management of the business can return to the company owner, i.e. director, partner. The director will then be in a position to handle payments due to unsecured creditors which were due before the appointment of the administrator.

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If the administration process isn’t successful in terms of the survival of the firm – and the sale of assets is not enough to cover outstanding monies due to unsecured creditors in full – the administrator will look to make part-payments to these creditors (these payments are commonly referred to as dividends). This is done with the permission of the courts. Once the costs of the administration are taken into account, there may not be surplus funds to repay other creditors and the company will most likely be liquidated - read more on liquidation for companies in Scotland here. There is a chance that creditors agree to a Scottish Company Voluntary Arrangement which will see them repaid over a set period of time – giving the company some breathing space to trade again.

What should be noted is that once a Scottish company enters administration, a moratorium (a legal bind) is put into place which will prevent any further action or harassment from creditors towards the firm.

You may also have heard of the term ‘pre-pack administration’ which is where an administrator sells the original company to its previous owner before it enters formal insolvency proceedings, allowing them to re-acquire the business assets and trade within a new company structure in a new name. This can be a particularly beneficial route in order to save jobs and keep the flow of business going.

The ‘pre-pack’ route has become increasingly popular in recent years; figures from 2012 show that a quarter of all administrations were of this nature. High-profile high street names such as Dreams and JJB Sports are just two examples of pre-pack administrations though they are not without controversy as it fairly typical for unsecured creditors to lose out on payment. From a debtor’s perspective, a director can often resurrect their business through a buy-back although it is possible they could face competition for the purchase of the business – particularly if it has a strong reputation and good assets.

For further advice or assistance, please contact your local Real Business Rescue office. We have a strong presence across Scotland with five regional offices – Aberdeen, Dundee, Edinburgh, Glasgow and Inverness. Alternatively you can seek instant advice through one of our Scottish insolvency experts by dialling our director hotline on 0800 644 6080.

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