24th November 2022
Thrings' have a wealth of experiencing in advising in the sale and purchase of assets from Administrators. If you are considering placing a Company into Administration or buying the business and assets please contact Melissa George or Mark Cullingford.
Administration: Can directors buy the Business and Assets from the Administrators?
In short yes, but in recent years increasing concern about possible misuse by directors/shareholder of the Administration process as a tool to cast off unwanted liabilities, or in some cases repeating the same mistakes, thereby risking the new business has led to some additional reporting obligations and from 30 April 2021 connected parties are required to comply with additional obligations.
So to who do these additional obligations apply?
These obligations do not only apply to directors, shareholders and their associates (broadly husband, wife, civil partners or those reputed to be such, as wells as their relatives). It matters not, that there are independent financial backers.
What are they?
Essentially, an Administrator cannot sell, lease or dispose of the business and assets (or substantially the whole of them) to a connected party within the first 8 weeks of the Administration unless the buyer either:
1. Obtains the consent of the creditors to the sale, or
2. Obtains an independent report from a qualified “evaluator” on the proposed transaction.
This includes disposals effected by a single or series of transactions.
How do I get creditors consent?
The Administrators need to formally request consent as part of the Administration process; it is not something that can be obtained before the commencement of the Administration. The request is made within their “statement of proposals” which must be sent to creditors within 8 weeks of their appointment. The creditors then need to formally approve the disposal to you.
If you want to buy the business and assets very quickly following the Appointment of Administrators, you will therefore need to obtain a “qualifying report”.
In practices the costs and risks of conducting continuing trade in administration means that a Qualifying Report and very early or ‘Pre-pack’ Sale is far more common
What is a Qualifying Report?
This is a written report provided by a qualified independent “evaluator” – such as the “Pre-Pack Pool”. The Administrator will participate in obtaining such a report. The report must contain certain content, including a statement as to whether or not the consideration offered is sufficient, and the grounds for the disposal justified, together with the reasons why. If there have been any previous reports, they must be referred to, and should be disclosed to the “evaluator” and creditors.
What if the Qualifying Report does not support the disposal?
In that case, the Administrator must inform the creditors and Companies House. If they still proceed with the transaction, they will need to explain the reasons for doing so.
What is the cost of obtaining a report?
If obtained from the “Pre-Pack Pool” the cost is currently fixed at £1,500 plus VAT.
Where can I find the legislation?
Administration (Restriction on Disposal etc to Connected Persons Regulations 2021
If you have any questions about any of the issues raised in this article please visit out insolvency page.