Every rugby fan reading this, and many more besides, will have heard the news two Premiership Clubs, Worcester Warriors and Wasps have entered administration in recent weeks. I thought I would take the opportunity to explain some of the terminology you may have read about in recent weeks.
Firstly, administration itself. Administration is designed to protect a company whilst plans are formulated to achieve one of the statutory objectives which focus on either rescuing the company as a going concern or to achieve a better return for creditors than would be achieved if the company was immediately placed into liquidation
Once a company is placed into administration, it is placed under the control of an insolvency practitioner (called the administrator) and receives protection from creditors (known as a moratorium) which prevents action being taken (or continued) against the company without the permission of the court or the administrator.
Prior to entering into administration, press releases from Wasps said they had “filed notice in the High Court that they intend to appoint administrators to protect the club’s interests” and that “the move does not mean the business is in administration”. It said it will provide “a crucial period of grace” whilst efforts were made to “secure the long-term future of the group”.
This relates to one of the ways in which an administrator can be appointed. The directors of a company can take the steps to place the company into administration. However, if there are creditors with qualifying floating charges over the company then notice must be served on these creditors prior to the company entering administration, giving the charge holder five business days’ notice. It is this notice of intention to appoint an administrator which is referred to in the Wasps press releases but which also places an interim moratorium over the company resulting in the same effect whereby no legal actions can again be taken or continued against the company.
The rumours after Wasps filed the notice of intention was that a pre-pack was being prepared. A pre-pack administration sale is a formalised way of selling a business to a third party or the existing directors if the business has financial problems and/or is experiencing pressure from its creditors.
The sale of the business happens immediately before or after the company enters administration. The administrator then reports to creditors that the business has been sold as part of his proposals to creditors. Where the purchaser is a connected party, the administrator may only proceed if the sale is either approved by creditors or the purchaser obtains a report from an (independent) evaluator.
For an administration to be a viable option for a company, advice needs to be taken at an early stage. If you require any advice or assistance on any insolvency-related issue, then please contact PBC Business Recovery & Insolvency to discuss and advise on your situation on 01604 212150 or email to firstname.lastname@example.org. Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.