Can the existing directors purchase the business from the Administrator?
Yes. As protection to creditors' much more disclosure about the purchase and circumstances is required if the directors are involved with the acquiring company.
How does this affect our company bankers?
Your bank will probably have a debenture charge registered with Companies House if there is borrowing by your company (either overdraft or loan). If the bank does have a charge it will be necessary to give 5 days' notice to your bankers prior to the appointment of an Administrator.
In practice, we will make contact with your bankers at an early stage to explain the company position and how this affects the bank.
What about the other major creditors'?
We are required to make contact with the major creditors' to advise them of the company position which includes the basic plan details and the marketing strategy.
How do your fees work in a Pre-Pack Administration?
There is a separate pre-appointment fee and Administrators fee. The Pre-appointment fee is agreed with the directors when you instruct us to proceed. The level of this fee depends on the work involved and can be as little as £2500.
The Administrator's fees are agreed by the creditors' and are depend on the work involved. Every case is different and it is difficult to generalise. Administrator's fees are unlikely to be less than £10,000.
How is the valuation of the company worked out?
We will instruct an independent valuation expert to carry out a valuation of the business and the assets of the company. This valuation will take into account the marketing constraints that exist in the circumstances.
As a general rule the price of the business and the assets should exceed
the price for the assets, which would be paid on a Creditors' Voluntary Liquidation. This is because there is a sale of the business that takes place with a Pre-Pack Administration rather than simply a sale of assets.
To justify the Pre-Pack Administration route there should be a better return to creditors' generally - and would include employees.
Does the business have to be marketed?
Yes. We are obliged to carry out a limited marketing exercise, but the amount of time is very limited in all the circumstances.
In practice, with smaller companies it is unlikely that a potential purchaser could purchase the company assets and goodwill without the continuing support of directors.
So why do a Pre-Pack rather than a full Administration?
To complete the sale as quickly as possible means that as much goodwill is retained as possible, as well as jobs.
Until the sale of the business the Administrator has to run the company – this is an extremely costly process and is prohibitive for smaller entities.
Does the purchasing company need independent legal advice?
We always advise that the purchaser takes independent advice. This is an additional expense and, in simpler cases the purchaser takes the view that this is not necessary.
We will usually instruct a solicitor to assist with the drafting of the sale and purchasing agreement. In simpler cases we may not instruct solicitors to keep costs to a minimum.
What information needs to be provided to creditors'?
There is much detailed information that needs to be disclosed to creditors'. This includes;
- Background to company
- Proposed plan to deal with the company assets
- Details of the purchaser
- Marketing carried out by the Insolvency Practitioner
- Valuations of assets
- Reasons for the failure of the company
How long does an Administration last?
The period of the Administration should not exceed one year. Should there be good reason why this period be extended, it will be necessary for the Administrator to make application to court specifying the reasons.