Administration is a formal procedure for an insolvent company. It enables protection against legal actions from creditors to be put in place whilst the administrator considers the business and prepares a proposal which sets out how the affairs will be dealt with.
This particular administration started out as a potential pre-pack administration. The company had been making losses for several years and had refinanced on several occasions. The director was advised to speak with us when the most recent finance was running out and he had been unable to find another lender. The director had identified a purchaser for the business and the process for a pre-pack sale commenced. However, the proposed purchaser withdrew and the pre-pack sale was no longer an option.
There was a risk the secured lender would enforce its security and repossess the property.
In the circumstances, the realistic options remaining were to place the company into liquidation, which would mean the business trading from the property would have had to close and the secured lender would probably repossess the building, or to place it into administration. Placing the company into administration was a quick procedure and provided protection against the secured lender or any other creditor taking action and meant the company could continue to trade while it was marketed for sale as a going concern.
The company was placed into administration and continued to trade under the control of the administrator while the business was marketed. As a result, the business attracted a good number of potential purchasers and a sale was completed within 4 months.
The director had guaranteed the secured lenders debt and was also owed a significant sum relating to funds which he had invested.
As a result of the administration:
The result from the pre-pack would have been marginally better but, once the purchaser which the director had identified became unviable, this was the best possible outcome in the circumstances.
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