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Administration or Pre-Pack Administration Guide for Law Firms

1st March, 2023
Keith Steven

Written ByKeith Steven

Managing Director

07879 555349

Keith is the author of the content on this comprehensive rescue, turnaround and insolvency website. He is the managing director of KSA Group Ltd - a specialist firm of turnaround and licensed insolvency practitioners. Keith was nominated for Turnaround Practitioner of the Year 2014 at the National Insolvency and Rescue Awards in 2014.

Keith Steven
  • What Does Going Into Administration Mean?
  • What happens when a company goes into administration?
  • How long does going into administration last?
  • What is a pre-pack administration or administration pre-pack sale?

If your law practice has severe cashflow problems and creditor or HMRC pressure is growing, it’s time to get support and advice on your options.

Its free to get initial advice from experts in turnaround and insolvency such as KSA Group who own this website. We have been rescuing, restructuring and selling law firms since 2003. Talking to experts (free) helps you understand this complex option and you will find it takes a lot of weight off your mind.

What Does Going Into Administration Mean?

Going into administration is when a company becomes insolvent and is put under the management of Licensed Insolvency Practitioners who are appointed as administrators by the Court after an application (petition) to the Court.  The directors and or the secured lenders can appoint administrators through a Court process in order to protect the company, its assets and their position.

What happens when a company goes into administration?

Administration is a very powerful UK insolvency process for gaining control when a law firm, which can be a LLP or company has serious cashflow problems, is insolvent and facing possibly serious threats from creditors. For example HMRC may be threatening a winding up petition for non-payment of taxes, or failure to adhere to time to pay arrangements. Or a lender may be seeking to foreclose against the law firm. Finally, the SRA may be threatening to intervene in the law firms affairs.

The Court may appoint a licensed insolvency practitioner (usually at last 2 IPs are appointed) as an “administrator”. This places an immediate legal moratorium around the company and stops all creditors legal actions.

The administration must have a “purpose” and the Government encourages the use of company rescue mechanisms after administration.

The 3 purposes (or objectives) are as follows:

1). – Rescuing the company as a going concern. (Note: this purpose is to rescue the Company as opposed to rescuing the business undertaken by the Company.)

Company rescue as a going concern – this is usually a  company voluntary arrangement. The company/LLP or partnership enters protective administration and is then restructured before entering into a CVA. The CVA would set out proposals for repayment of debts to secured, preferential and unsecured creditors. When the company has its CVA approved by creditors, then the administration process comes to an end after 28 days.
2 Achieving a better result for the company’s creditors as a whole than would be likely if the company was to be wound up (liquidation).  This better result is usually obtained by selling the BUSINESS as a going concern to one or more buyers. The company and the debts are “left behind”. The better result may include securing transfer or employees under TUPE, as well as selling goodwill, intellectual property and assets.

3).  – Controlling and then selling property/debtors. This is called realising assets. Then the administrator makes a distribution to one or more secured or preferential creditors, in order of creditors priority LINK?. Usually the business ceases trading and employees are made redundant.

Only if the first two options are deemed unattainable, can the administrator use this third option.

The law requires that any finance provider (like a bank or lender), with the appropriate security, is contacted and the aims of the administration be discussed and approved. The finance provider must have a fixed and floating charge (usually under a debenture) and the charge holder will need to give permission for the process to go ahead. Five days clear notice is required.  Be aware, though, that a secured lender can appoint its own administrators over a company without notice if it thinks its money is at risk. Obviously a plan and good communication with the secured lender is essential.

How long does going into administration last?

It depends very much on the circumstances.  In a trading administration the administrators take on the employment contracts of the company after 14 days so it is desirable that the business is sold out of administration before that date. Or, more usually, the employees are made redundant before 14 days have elapsed in adminisatrion.

The insolvency practitioners are not allowed to run the business at a loss and so making the creditors position worse off. They must pay PAYE, VAT, NIC, suppliers and rents for example, whilst the company is in administration   If there are large amounts of money to collect in or substantial realiseable assets then they may trade for longer periods.  During this time they will need to report to the creditors at regular intervals.

What is a pre-pack administration or administration pre-pack sale?

The company prepares itself to enter administration and sell its assets to a new company (“newco”) or to an existing 3rd party company. The directors engage advisors to run the sales process.

The proposed administrators engage chartered surveyors as agents to VALUE the business, goodwill and its assets, this may include, debtors, brand, work in progress in a  law firm for example. They also engage insolvency solicitors to draw up the required contracts for sale, applications to Court etc.

After the agents have marketed the BUSINESS for a period of 2-3 weeks they report the proposed bids to the proposed administrators. He, she or they then choose the best bid to achieve objective 2 above.

Within a day or two the COMPANY files a notice of intention to appoint administrators and serves notice on the bank or secured lenders. Once the notice ceases or if the lender consents, the BUSINESS is sold, the assets are turned into cash and the old debts stay with the old COMPANY.

What will the regulators think?

Obviously the SRA will need to be closely involved BEFORE the pre pack or any form of administration process is begun. Only solicitor insolvency practitioners can act as trading administrators. There are very few such qualified solicitor IPs.  However we can act as advisors and then administrators if the process of pre pack is used. At all times though close liaison with the SRA will be required.

“Informed Client Consent”.

Should any form of sale of a law firm be planned, either in administration or liquidation  (or even a MA& process) you must obtain informed client consent. We can discuss this with you as part of our overall advice on restructuring. Do not act until you have taken insolvency advice from experts in law firm restructuring.

Administration is a very powerful, far reaching process that can protect the BUSINESS and is a form of business rescue, however usually the old company (oldco) is liquidated afterwards. Call Keith Steven on 07974 086779 to discuss how administration may, or may not work for your law firm.

Pre pack: Checks, Controls and rules.

The pre packaged administration sale used to be a very popular method of rescuing a business. However, there has been much media coverage of creditors’ dismay at seeing their “debt dumped” by a former customer. In response there is now much more regulation of the process particularly when a sale to connected [parties to the existing directors (or to the existing directors in a new company).

We can take you through the process of applications to the Pre Pack Pool and also introduce – pre pack evaluators to assist you with your bid. In addition we know the buyers of law firms who are active presently. They may or may not be interested in a purchase of the client files.

However, in advance of any meeting and issuance of engagement  letters our regulators and the Insolvency Service (part of HM Department of Business Energy and Industrial Strategy) require all insolvency practitioners to obtain know your client (KYC) and anti-money laundering (AML) identification documents for all directors and shareholders holding >25% of the shares to allow us to proceed to advise the company. We will require up to date ID information including a photographic ID, such as a passport or driving licence PLUS a home utility bill or bank statement for each person.

Got questions? For answers to all these questions read our guides or call us now on 08009700539.

Worried Director What Will Happen To Me After Liquidation?

in Company Liquidation What is …?

"A man in the pub said I cannot be a director of any other company if I liquidate my company. Is this true?"Actually, this statement is entirely false! Misconceptions like this frequently arise from individuals with limited understanding of the subject matter. Such misinformation can cause undue anxiety for directors considering liquidation, fearing it might personally affect them. Guess what? Listening to bar room experts, inexperienced accountants, or no insolvency specialist lawyers can stop decisions being made, this failure to make a decision is really what could land you in trouble. So how will liquidation affect me and how long does it take? Having a limited liability company means that the directors have little risk (or limited liability) if the company fails, as long as they have acted properly and acted in time. What is more, if as a director, you have been compliant and on the payroll for many years, you can actually claim redundancy from the government like any other employee. But, and it is a big but, if you fail to act in time, fail to act reasonably, fail to keep books and records, continue taking credit KNOWING that the company cannot possibly repay it, then you ARE at risk of personal financial loss or worse such as losing your house. So, act now and get help for your company and more importantly start reducing your own risks.Voluntary liquidation is the quickest most efficient way to deal with an insolvent company that has no future. As a director of an insolvent company, you are at risk if you do not act. This risk RISES the longer you don't act to put the company into liquidation.If you fail to act and the company is wound up by the creditors (compulsory liquidation) then the Official Receiver (OR) will be appointed to liquidate the business and he or she will investigate the activity of the directors and the business over the last 2-3 years. This is known as a conduct report on each director.  If the OR can prove there was wrongful trading where, for instance, you have taken credit from a supplier or took deposits from customers when you knew that it was highly unlikely that you could pay them back, then you could be made personally liable.This is known as the "lifting of the veil of incorporation" that protects directors under limited liability. If this happens then you could made liable for PAYE, VAT and creditors monies from the time that you should have known the company had no reasonable prospect of surviving the problems it faced.Additionally, the directors may face disqualification proceedings under the Company Directors Disqualification Act 1986 for up to 15 years, they can be fined and may face the loss of personal assets like your home, or even personal bankruptcy.Look, if you as directors have acted naively you may not know that you have broken these laws, but now you do know, it is vital to ensure that you protect yourself as a director by acting quickly to cease trading and put the company into voluntary liquidation; or consider a company voluntary arrangement if the company is VIABLE if the problems are solved. What is Creditors Voluntary Liquidation and what does it mean for me? In short, liquidation usually means, the company's trading stops and it's assets are turned into cash or "liquidated".All other possible liabilities, like employment liabilities, landlord's rent or payments to lease companies are stopped. It really is the end of the company, but the "business" may survive if a phoenix is organised. Liquidation is a powerful way to END creditor pressure and let you get on with your life. What if I have signed personal guarantees? If you have signed personal guarantees or indemnities to lenders, then the liquidation could lead to them being called in if the bank cannot get its money back from the company. There is little that can be done about that, but you should not delay decisions on liquidation to try and prevent a PG being called in: just think what ALL of the company's debts landing on your shoulders would do. Also it should be noted that HMRC now rank ahead of floating charge holders in any liquidation since December 2020.  Consequently, this may well mean that lenders that you have personally guaranteed will get less recovery hence exposing you more.All banks will agree a deal to repay the PG over time - provided you work with the bank to reduce their exposure.One great piece of FREE advice - always make sure that ALL tax returns, VAT returns and annual returns have been completed and sent in and that other "compliance" issues are dealt with wherever possible. These are important processes and will help protect you as individual directors. It shows that you have been acting properly.  I have heard about directors being able to claim redundancy in liquidation If you have been employed by the company and made payments via PAYE then you will be able to claim redundancy from the government and this is in fact a very simple process (20 minutes to fill out a form and we can help with that) so there is no need really to employ a third party to make a claim.  This process has been open to fraud so the HMRC are cracking down on operators that claim to be able to get money back when there is not enough "paperwork".  It isn't worth the risk.  If it sounds too good to be true then it probably is!You need to learn more about the options. This is clearly a general guide so, if you have any worries at all, please, just call us and we will talk you through the situation free and with expert guidance for your situation. Call one of our advisors or if you prefer, call our IPs (insolvency practitioners) now:Just one CALL will help relieve the stress and get you out of the mess.Why not call 08009700539 or 020 7887 2667 now?We could help you start the liquidation process today.(8.15am till 5.00pm; Out of hours call on 07833 240747, Wayne Harrison (IP)  or Eric Walls (IP) on 07787 278527)Finally, please remember this: NO BUSINESS is worth losing your health, relationships, marriages or your children over. Act properly, take advice, get the problem sorted and then get on with your life. In a little while the stress will go and you can focus on other things that are more important.Want more information on liquidation? Get our new free 2023 Experts Complete Guide to Creditors Voluntary Liquidation that covers Bounce Back LoansWe are experts in liquidation, voluntary liquidation, administration, pre-pack administration, business rescue, corporate rescue and company rescue, we can help solve your problems but only if you talk to us. Call 0800 9700539 for help.or email us your worries at 

Worried Director What Will Happen To Me After Liquidation?

Notice of Intention To Appoint Administrators

A notice of intention to appoint administrators is when the company files a document to the court to outline that it intends to go into administration if a solution cannot be found to its immediate financial problems. It can be used as part of the pre-pack administration process as well as used to restructure a failing business to avoid its liquidation.

Notice of Intention To Appoint Administrators
Man with umbrella

What Is A Winding Up Petition By HMRC or Other Creditor

A winding up petition is a legal notice put forward to the court by a creditor. The creditor petitions to the court if they are owed more than £750 and it has not been paid for more than 21 days. The application, in effect, asks the court to liquidate the company as they believe the company is insolvent.

What Is A Winding Up Petition By HMRC or Other Creditor

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