In many cases Administration leads to the sale of the company’s assets on a going concern basis. The sale of the company’s assets may be agreed before the company goes into Administration and completed immediately after the commencement of the Administration. This is commonly known as a “Pre-Pack” or “Pre-Packaged Administration”.
A “Pre-Pack” can ensure a smooth transition with minimal disruption to the business preserving its goodwill and enhancing realisations for creditors. Employees generally retain their employment transferring to the purchaser of the assets under the TUPE regulations (Transfer of Undertakings Protection of Employment) Regulations 2006.
If the Administrator does decide to proceed with a pre pack sale creditors will be issued with a detailed report as to why this course of action was considered appropriate by the Administrator.
Assets sold by the Administrator must be valued by a independent professional valuer.
Pre-Packs have received considerable negative publicity particularly where the assets are sold to the directors of the insolvent company but even in such circumstances it may still provide the best outcome for creditors.
Administration ends automatically after one calendar year, unless the creditors agree to an extension.
There are four routes by which a company may exit from Administration:
1) Liquidation – If there are funds to distribute to unsecured creditors.
2) Company Voluntary Arrangement – If the business is able to generate a better return to creditors by continuing to trade than if its assets were sold.
3) Dissolution – if there are no funds to be distributed to unsecured creditors
4) The company may be returned to its directors on the very rare occasion that the company, and not just the business that it carried on, has survived as a going concern.
A partnership can also utilise the Administration procedure.