When a business faces serious financial problems taking prompt action is usually key to saving it.
At Cork Gully we will work with the company, its directors, shareholders and other stakeholders to consider the options available to the company and set out the actions that may be taken.
In an administration, the company and its assets are placed under the control of an Administrator and the protection of the Court. The appointment brings a moratorium into immediate effect which prevents creditors taking action against the company without the agreement of the Administrator or an order of the Court. This ‘breathing space’ allows the Administrator and the directors to take stock of the company’s position and formulate a strategy for the way forward.
An Administrator can be appointed without the need for a Court order, making the process simple and cost effective. Administrators can be appointed:
- Out of Court by the company or its directors
- Out of Court by the holder of a “qualifying floating charge”
- By the Court or upon application of the company or its directors (or one or more of its creditors, the holder of a qualifying floating charge or an appointed liquidator)
The purposes of an Administration must be as follows:
- to attempt the rescue of the company as a going concern;
- but if that is not achievable, it must achieve a better result for the creditors as a whole than would otherwise be achievable in a liquidation; or
- when the above are not reasonably practicable, the only objective must be to realise the assets for the benefit of one or more of the secured or preferential creditors.
A rescue of the company as a going concern is often achieved via a restructuring of the business and an exit from administration through a company voluntary arrangement (CVA), with the business being returned to management.
Where a rescue of the company itself cannot be achieved the Administrator’s efforts would be directed towards maximising the return to creditors from a sale of all or part of the business and its assets as a going concern . This could take the form of a pre-packaged sale where it can be shown that this would be advantageous to creditors. During the marketing campaign the business may continue to trade if there are sufficient funds to cover operations, or it may be closed.
An Administrator acts as an agent of the company and can continue to trade all or part of a business. Trading must be in the best interests of creditors, so the Administrator must be comfortable that either:
- trading will be profitable and generate funds for creditors, or
- preserve the value of the business and ensure that realisations are better than in a close down situation
Trading during administration ensures continuity of services and supplies to customers and can therefore preserve the value of goodwill and the customer base.
If funds are not available to trade the business, it may be necessary to shut down whilst a rapid and intensive marketing campaign is carried out.
At Cork Gully we will use our extensive network of contacts when offering the business for sale and will seek formal offers from credit-worthy sources with the objective of obtaining the best possible value for the creditors. We will offer the business for sale in UK, Europe and the rest of the world, if applicable.
Pre-packaged Administration Sale of Business and Assets
A pre-packaged sale (“pre-pack”) refers to an arrangement under which the sale of all or part of a company’s business or assets is negotiated with a purchaser prior to the appointment of an Administrator. The sale will be affected by the Administrator shortly after their appointment.
The process can be seen as controversial because the creditors do not have the opportunity to vote against the proposed asset sale. The rationale behind the process is that a swift sale of the business assets may be necessary, and will often result in the best price being achieved and the largest part, or all, of the business continuing with new owners. If the sale was delayed, creditors could ultimately lose out because the price charged for assets will often be reduced after a company enters Administration.
An Administrator must show creditors that a fair price has been paid for the assets/business and explain why it was not possible to trade the business which would have allowed an open and transparent sales process.
If the pre-pack sale is for a substantial part of the business and/or assets, and the sale is to a connected party either:
- The purchaser must seek an independent evaluator’s report of the transaction; or
- The administrator must seek creditor approval to enter into the transaction.
The advantages of pre-packs are:
- Minimum disruption to the business
- Preservation of the company brand
- Preservation employees' jobs
- Maintaining trade with existing suppliers and customers
At Cork Gully we can advise on funding strategies, marketing and provide introductions to a range of investment sources.