Case Studies for Administration Orders
An Administration Order is a court order which protects a company from action taken by its creditors company's outstanding debts. The idea behind the order is that it gives time for an appointed Administrator to re-structure the business with the view to enable it to trade on once the Administration Order is lifted. Under administration rules the administrator can appoint anybody he requires to act as a director or advisor to aid in this process (S13, Insolvency Act 1986).
The Administration must have a purpose and the Government encourages the use of company rescue mechanisms, such as CVA, after Administration.
The following case studies give a fuller idea of how an Administration Order can be used to save a business.
Optic Cables Manufacturer
The company was hugely over manned, had too many properties and was acquired by a venture capital company for a small sum.
It was decided that a combination of an Administration Order and CVA were the best way to save the business.
During the administration period a fairly deep cut in people and overheads was implemented. In addition there was a need to exit the head office which was costing nearly £1m pa. It was agreed with the Landlord that the company would exit the property and the outstanding claim for rental payments would form part of the CVA proposals.
Once the company had been restructured, the CVA was proposed to and accepted by the creditors leaving the business in a position where it could continue to trade profitably.
Clearly, this was a very unusual set of circumstances but demonstrated that if a sensible approach is used then the Administration and CVA are extremely powerful to preserve a core business which is being strangled by top heavy staffing costs and expensive leases.
The company satisfied it's CVA in full after just 13 months and is now operating very profitably.
Ailing Mushroom Grower
Based in Hertfordshire, the company operated from a large site producing 80 tons of mushrooms per week, supplying several high street supermarket chains. This well-established business employed 220 staff with annual sales of £44 million.
The business encountered severe problems caused by a fire, which resulted in a significant drop in production. At the same time, the Belgium parent company was also experiencing difficulties and was subsequently placed into administration.
Working in conjunction with both the directors and an invoice financing company who had an exposure in excess of £1 million, the company was put into Administration. The Administrator continued to trade the business for 4 weeks, enabling the customers to alternate source. A going concern sale was completed preserving the majority of the jobs. The financier recovered its exposure in full.