Administration is a procedure which can only be utilised by a licensed insolvency practitioner. A licensed insolvency practitioner has a statutory obligation to perform his functions with the objectives of rescuing a company as a going concern, achieving a better a result for creditors as a whole than if the company had first gone into liquidation, or realising property to make a distribution to secured creditors.
There are a number ways which the objectives of Administration can be achieved and the Administrator will look at a number of scenarios before making a decision on how the Administration is going to be conducted.
Once appointed the Administrator takes over the running of the company and makes all the key decisions on how the company is to be operated, this also means that the directors lose their powers and control of the company.
The Administrator can achieve the objectives of Administration by advertising the business for sale whilst continuing to trade the business. Once a purchaser is found the Administrator may sell the shares or parts of the business. If there are no purchasers for the business then the Administrator will close down the company, make all the necessary redundancies, and sell the remaining assets.
Pre Pack Administration
A Pre Pack Administration is when the sale of the business assets has been substantially agreed prior to the company entering administration. Upon the company entering Administration the Administrator confirms the sale.
One of the issues regarding a Pre Pack Administration is that the sale can complete prior to the creditors meeting and without notice to creditors. This can be an area of concern which creditors can complain about as they may believe that an underhanded deal has taken place.
This has led to significant controversy and has resulted in some very negative publicity, however if this procedure is completed correctly in accordance with all the guidance, there is no reason why a successful pre pack administration cannot be achieved.
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