In my previous article, using insights from retailer Wilko’s situation, I looked at how an Insolvency Practitioner works with a financially-distressed company in a variety of ways to find a suitable solution.  

Wilko is in Administration currently. For those involved with any business that becomes insolvent, it can be an uncertain and emotional time, as we have written about previously in our articles. Here I look at the Administration procedure in more detail.

What does Administration mean?

When a firm goes into Administration, it is a legal process in which licensed Insolvency Practitioners – in Wilko’s case PwC – as appointed as Administrators by the directors, a creditor or the court. The company can continue to trade but daily management and control of everything it owns passes from the directors to the appointed Administrator.

Administration helps financially-distressed companies such as Wilko to ‘weather the storm’, protecting it against legal action by creditors while a solution is sought.

Once in Administration, the company is free of legacy liabilities, making it more attractive to potential buyers.

The main ‘purpose’ of an Administration is to sell the business as a going concern or, if that is not possible, to provide a better outcome for creditors than if the company was just wound up as a liquidation.

What is the role of an Administrator?

The Administrators have a duty to act in the best interests of all the creditors.

The Administrators have to achieve one or more of the ‘purposes’ set out of the Administration.

As with Wilko, the Administrators will explore whether the business can be rescued as a going concern but if not, the business and assets might be sold off piecemeal to produce a better outcome for creditors than a liquidation.

The Administrators have eight weeks from their appointment to put forward proposals to creditors on how they intend to deal with the company. In Wilko’s case, the Administrators PwC were appointed on 10 August 2023 so these proposals should be issued by 5 October 2023.

The Administrators are not able to make payments to the general unsecured creditors.  If once the assets have been sold there are funds available to pay unsecured creditors the Administrators will exit the company into liquidation.

The Administration will end automatically after a year unless the Administrators ask the court for an extension or exit into a liquidation process.

Liquidation

While a company is in Administration it cannot be wound up by another creditor through a liquidation process. Once the Administrators have achieved one or more of the ‘purposes’ set out they will exit the company in either a Compulsory or a Creditors Voluntary liquidation to enable the unsecured creditors to be paid.

As Administration can be a complex matter and conditions can be volatile at times, an Insolvency Practitioner has to be highly experienced at collaboration and dealing with all parties in a proactive and sensitive manner. This includes helping directors manage their situation and simultaneously providing the best solutions for creditors.

Look out for my next article about the different classes of creditors and who gets paid when.

If you would like to know more about Administration and our expert insolvency services, you can get in touch with me below.