Move over pre-packaged administration, it’s time for light touch administration

In these challenging times due to coronavirus, are company survival administrations finally going to have their day in the sun? The government have recently announced the fast tracking of new corporate rescue legislation (on which we report separately). However, it remains to be seen when that legislation will come into force, what form it will take and how relevant it will be to SMEs.

In the meantime, solutions are needed for viable businesses with short term cash flow issues to allow them time to take advantage of the schemes on offer from the Government in respect of employees, tax, lending etc.

Enter “light touch” administration. Unlike Chapter 11 bankruptcy proceedings, administration in the UK is not “debtor in possession” whereby the directors remain in control of the business. An administrator, a regulated officer of the court and usually an accountant, takes over day to day control. However, administrators are used to working flexibly with management and the main selling point of an administration is that it creates a statutory moratorium preventing creditors from enforcing their rights.

A company can therefore use administration to protect the business from creditor enforcement whilst working with an administrator to maintain or mothball operations and then exit administration when that purpose has been achieved. The moratorium can last for an initial period of up to 12 months to see a business through the current difficult times. The lighter touch the administrator’s involvement in the day to day running of the business, the cheaper the process will be.

A light touch administration will not be right be for all companies, but a more positive use of the insolvency process could save businesses and jobs, if used in the right way.