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What is an administration sale?

13th December, 2022
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 has expert knowledge on the company voluntary arrangement (CVA) mechanism

Keith Steven
  • If a business goes into administration what happens if it is sold?
  • For Directors
  • For Employees
  • For the Buyer

If a business goes into administration what happens if it is sold?

When a business goes into administration one often hears about the administrators putting a business on the market as they try and sell the business. This is mainly because the administrators are charged with getting the maximum return for creditors as quickly as possible. By putting the business up for sale there is a possibility that a lump sum of cash is available.

The administrators are not allowed to trade the business at a loss and after 28 days they personally take on the liability of the employment contracts. Therefore a quick sale is the preferred option. Of course, the problem with a quick sale is that the urgency will mean that the valuation is likely to be depressed. Having said that if a business languishes too long in a period of limbo then the value of the business can be quickly eroded and staff are demoralised accelerating the decline. This is sometimes the justification of a pre pack administration , where the business is put into administration and then effectively sold at the same time.

Prior to a sale of the business the administrators will usually take drastic measures to reduce the costs. In the case of retail they will usually close down many stores and make people redundant i.e. the case of M&Co.

For Directors

Once the business has been put into administration the directors lose control of the process and will have no say in who the business is sold to or for how much – Unless of course they can raise funds to buy the business back.

For Employees

Any employees who remain in the business throughout the administration and who subsequently work for the new owners will have their employment contracts transferred over via the TUPE Regulations. This means that they will be entitled to any redundancy pay if the new owner looks to make cuts to employment. This was decided in recent case law.

For the Buyer

The first priority of any purchaser will be to try and put the business onto a firm footing as soon as possible. Obviously the buyer will have done their due diligence and will know a fair bit about the business but it will be a steep learning curve as any deal is likely to have been done quickly.

To find out how to buy a business out of administration then please refer to our how to buy a business out of administration pages.

law books

CVA Case Law Created By A KSA Client – Thomas Vs Ken Thomas Ltd

Thomas Vs Ken Thomas Ltd and the Court of Appeal upheld our clients position.  The case can be summarised as below: The Court of Appeal’s decision in Thomas v Ken Thomas Limited highlights a significant aspect of the landlord-tenant relationship concerning the appropriation of payments made by a tenant in arrears and where a CVA is proposed. Here’s a summary: Key Issue:The case dealt with whether a landlord can appropriate (allocate) a tenant’s payment towards rent for a period other than the one specified by the tenant. The court examined the implications of accepting payments from a tenant who has specified the payment to cover rent for a particular – in this case one month in advance - period. Facts:Ken Thomas Limited, was a medium sized loss making haulage contractor requiring a turnaround. It approached KSA to oversee a CVA led restructure. It leased over 1million square feet of logistics premises  from Mr. Thomas but fell into rent arrears and became insolvent. It proposed to enter into a Company Voluntary Arrangement (CVA).  During the CVA construction/ preparatory period, our KSA operations director, Iain Campbell agreed with the landlord that the tenant would pay future rent on the first day of each month for that month, whilst arrears were frozen. This was agreed in writing with the company and the landlord. The company offered to pay the monthly rent for December and subsequently for January, specifying the allocation of these payments. Mr. Thomas, however, unilaterally applied these payments to previous arrears and claimed the company was in breach of the lease and sought forfeiture action in the Norwich County Court, which was granted. Decision:The Appeal Court ruled in favour of Ken Thomas Limited, finding that Mr. Thomas had waived his right to forfeit the lease by accepting payments specified for December and January rent, thereby binding himself to the tenant’s appropriation of the rent funds. The court emphasised that a landlord must refuse or return the payment if they disagree with the appropriation specified by the tenant, to avoid waiving their right to forfeit the lease for non-payment.Legal Principle:The case underscores the principle of appropriation in the landlord-tenant context, stating that a tenant can decide how their payments are to be allocated if specified. Absent such specification, the landlord could choose the allocation. Implications:This judgment highlights the importance for landlords to understand the implications of accepting payments from tenants in arrears. It illustrates the need for landlords to be clear about their commercial objectives and the potential consequences of accepting payment against the backdrop of a breach of covenant. The case also led to the common practice of including ‘no waiver’ clauses in leases to protect landlords from inadvertently waiving their rights to remedies for breaches by accepting rent payments. Looking at this case some 15 years later we remember how difficult it was but the company had its CVA accepted by creditors with KSA leading the restructuring project. Our more recent cases are highlighting that many landlords premises are “overrented” post Covid and may need to either be exited using the CVA or have the rent varied by a well written CVA.  We are currently working with haulage and logistics companies recruitment companies, software/tech companies, manufacturing companies and retailers to assist them to reduce fixed costs like rent. If you are a tenant of a commercial premises and your business  needs to restructure, or is considering exiting the lease to support cashflow then you need expert advice. It could be a CVA is the appropriate tool to use. KSA Group helped create the above case law  so you can be sure we know a thing or two about CVAs and properties.

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CVA Case Law Created By A KSA Client – Thomas Vs Ken Thomas Ltd

Company Insolvency in Scotland

Is there a genuine company rescue culture in Scotland? There is only one company driving the rescue culture in Scotland, and you have found it!Our firm KSA Group, who run this website, are responsible for a significant proportion of CVA led rescue work in Scotland.If you run an insolvent or struggling Scottish company the chance of rescue is low. Amazingly, less than 1% of insolvent companies are rescued by a company voluntary arrangement or CVA each year!  This is compared to England and Wales, where proportionally, the CVA is used 4 times as often.So always ask your advisors these questions - What about a CVA - would that work? What is the comparison between CVA and liquidation? What is the comparison between CVA and administration?

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Company Insolvency in Scotland
Lies,Truth,Wooden,Signpost

Liquidation Myths and Untruths

in Company Liquidation

Below are the most common reasons why people are discouraged from taking necessary action to liquidate their company.  In some cases actually trying to avoid liquidation by selling the company.  Reputational damage If you do not pay your creditors you will suffer reputational damage whether you have sold it to another company or liquidated it formally.  You may not be able to get business insurance and your current insurance may not be renewed if you have another company. This is completely untrue.  We liquidate companies all the time and the directors do not have this problem.  They might have issues getting cover if they do it more than once.  Some very riskaverse insurers might turn you down but there are literally thousands out there.  There may be a tiny increase in the premium and you may have to answer a few more questions for the insurers piece of mind.  You won't be eligible for any business finance or loans from banks or other lenders Again this is simply not true.  All banks and lenders recognize there is some risk in running a business and a failure of a start up or a liquidation is not going to be a problem.  It will be if there appears to be a pattern of multiple liquidations though.  Even then it will not have any affect on your personal credit rating.  Company credit scores are totally separate.  You will be disqualified as a director if the company goes into liquidation This is completely wrong. Only if you have been fraudulent or deliberately misled creditors knowing the business is going to fail will you face disqualification or be personally liable for the debts (note that if you have personally guaranteed loans then yes you will be liable ). This worry tends to make directors “freeze up” and take no action out of sheer panic.  You can’t be a director again if the company fails Completely wrong again (see above).  You may not be able to obtain another VAT registration. If you do, HMRC may require you to pay a significant deposit. If you owe the HMRC a substantial amount of VAT then they will wind the company up with a petition, so it will be liquidated anyway. The former directors during the time the money was owed will be on their radar.  It is better to do a voluntary liquidation in these circumstances.  Yes you may need to provide a deposit in a new company but probably only if you owed them substantial sums.  Large companies and local authorities wont grant tenders to directors of liquidated companies What is actually being said here is that large companies won't give tenders to insolvent companies!  Well of course they wouldn't.  A previous liquidation by a director will not preclude them.  There is no mention of any such exclusions in the The Public Contracts Regulations 2015.  The NHS will not employ anyone who has liquidated a company Err no.The one area where liquidating a company can have some personal issues is if you are going to work in very sensitive finance areas and perhaps national security.  This is mainly because they worry that a creditor could apply pressure on you or you could be more easily bribed if you have lost a lot of money in the past.  However, avoiding voluntary liquidation may well result in a compulsory court liquidation process that is likely to lead to even worse outcomes. 

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Liquidation Myths and Untruths
creditor definition in dictionary

Secured And Unsecured Creditors – What Is The Difference?

I am confused about secured and unsecured creditors.  What is the difference? As a director of a company that is doing well and making money you may have no real understanding about the important differences between certain types of creditors.  The only time it really comes up is if you apply for a loan for the business and the lender talks about security and the loan being secured etc. Secured Creditors A secured creditor is a creditor that has security over an asset or assets of the company. So, if the company can't pay then they have the right to the proceeds of the sale or proceeds of the asset.  This is enabled by a legal document called a charge or debenture.  There are two kinds of charge;  A Fixed Charge and a Floating Charge.  The difference is quite hard to explain in a few words so we have a dedicated page on the differences.  Have a read here on fixed and floating charges.  A fixed charge is essentially a charge on a very specific asset whereas a floating charge is across a range of assets or asset that can change.A charge is a bit like a mortgage on your house.  If you fail to keep up your payments then the bank can effectively force the sale of the asset and reimburse themselves.  In a company situation if the secured lender is owed money then they can "force" the company into the hands of administrators who will pay them having sold the assets.  This description is simplistic and is more akin to the old system of receivership but it illustrates the principal. Unsecured Creditors These are essentially creditors that have no security over the assets.  This can be a trade supplier, HMRC, a utility company.  Banks will often lend without security but they will charge a higher rate of interest to offset the risk they can't get their money back.Be aware though that some creditors are called secured as they have a personal guarantee from the director and they may use terminology like "secured against the directors personal assets"  In insolvency law they are not secured and so come after the secured creditors that have a "charge" over the company's assets when money is paid over in the event of a terminal insolvency event like liquidation. What about defacto secured creditors? These are creditors that do not have any security over the company's assets but they have control over the company in that they can shut it down.  An example might be the creditor that runs their proprietory software, or their means of payment (this happens when Amazon have lent the company money to develop their online shop)  such creditors are more properly referred to as "ransom creditors". Ransom creditors are more important if the company is insolvent but could be rescued and so need to continue to trade.  So they need to be kept happy!In a liquidation scenario they would be behind a secured creditor that had a charge over the stock for example.For a more detailed explanation of the priority of creditors in an insolvency situation then please look at our page on creditor priority.  There is even a handy infographic on there too. 

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Secured And Unsecured Creditors – What Is The Difference?

How to Liquidate A Company With No Money

in Company Liquidation

Dissolution as a way to close a company with no money If the company has no money and it needs to close down then, providing that it does not owe creditors substantial sums, it can seek to be struck off or dissolved.  This process is known as dissolution and is governed by Sections 1003 to 1008 of the Companies Act 2006 (formerly Section 652 of The Companies Act 1985)However, bear in mind that dissolving the company (removed from the Companies House Register) can only happen if the following conditions apply:The company has not traded for three months; there must be a genuine cessation of trade. The company has no assets, property or cash at the bank. The creditors are informed, requesting their permission for the company dissolution. Creditors are given three months to consider the request to dissolve the company and can reject such a request. The company has not changed its name during this period. The company has not disposed of any property or assets (this may include land and buildings, plant and equipment, debtors and other assets).If the company does have debts, say about £5000+, then really the company needs to be liquidated.  A company that is insolvent will need to be liquidated using either a Creditors Voluntary Liquidation (CVL) or the creditors themselves will petition the court, using a winding up petition, to force the company into a court led process also known as a compulsory liquidation.So, if the company has no money and the directors do not have the funds to go down the route of a CVL then they will need to brace themselves for the compulsory process.  This is risky for them personally and is not a pleasant process.  What is more it can take about a year to be completed stopping the directors from moving on with their lives.  This will be the consequence of running down all the funds in the company.Even if you do manage to dissolve the company with debts then it can actually be resurrected up to 3 years later and wound up by court with the directors being investigated.  This is covered by the The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act. What about using directors' redundancy to pay for the liquidation? Beware companies telling you this.  Directors will need to show that they were legitimately employed i.e. being paid a proper salary via PAYE for the work they have done.  Being paid for holidays and having a proper contract.  The Redundancy Payments Office (RPO) are routinely rejected directors claims as they see their "salaries" often as just extracting sums from the company in their capacity as office holder.  If they are working all hours on the business but only paying themselves £700 a month on PAYE then that is below minimum wage so they are not actually "legally employed" Can I liquidate the company myself? No you can't. It is true that only its shareholders can start the process but a licensed insolvency practitioner has to actually do the liquidation.

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How to Liquidate A Company With No Money
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Why We Are Experts At CVAs! Read Our Story Regarding This Rescue Mechanism

The KSA Group started taking formal insolvency appointments in 2009 with the merger of KSA Group and Marlor Walls in the summer of that year.Since then we have learned a massive amount about the technique, we’ve gained experience from dealing with over 320 CVA appointments between 2009 and September 2022 . That’s 320 crisis situations - devising appropriate rescue and turnaround strategies together with our clients’ boards of directors, their lenders investors and stakeholders like creditors, landlords and employees.Many in the insolvency markets have a negative approach to the CVA tool. Variously over the years we have been told that “CVA doesn’t work, they are never the best solution, they hardly ever succeed. Creditors get nothing. HMRC will not support a CVA” and we understand that approach. Often clients or prospective clients report to us that other insolvency firms rubbish the CVA tool. Perhaps that’s why CVAs are not that common. Only 175 have been approved nationally in the year to 30th December 2023.We beg to differ. A well structured, “fit, fair and feasible CVA” scheme can:Rescue viable businesses when a critical event has occurred. Help a determined management team rebuild a failing business. Save jobs of employees. It is likely that KSA saved over 11,000 jobs from 2009-2022. Save directors livelihoods and health. Return money to creditors: KSA has distributed £31m to creditors 2009-2022. This excludes secured debts and secured factoring facilities, much of which have been or will be repaid. Repaid £17.9m to HMRC between 2009 and 2023, remember this for the most part when HMRC was an unsecured creditor (2009-2020). That’s taxpayers money. Saved creditors money. Preserved 320 customers for thousands for suppliers, accountants and professional advisors.Nobody knows more than the KSA team, that CVA rescues are tough to construct, tough to implement, and tougher still for companies to successfully recover from.  We have filed more successful CVAs than any other practitioner.  We can send the research to you if you want. Please email robertm@ksagroup.co.uk for the FOI request reply from Companies House.The London Gazette (the official paper of record dating back to the 17th Century) has published an article about CVAs written by Keith.Diligent and organised directors can use this enormously powerful tool, case law and best CVA practice to drive a turnaround but only if guided by experienced turnaround and insolvency professionals. Be under no illusion this is tougher on the directors than anything they will do in their careers. Emotionally, intellectually and physically the CVA led turnaround requires directors to have resilience, physical and mental determination and a good guide.Of course, not all CVAs reach full term but the process secured jobs, paid back creditors a good chunk of what they were owed and with that helped reduce directors liability under their personal guarantees!Conversely, some clients paid off a 3-5 year CVA scheme debts in 6-18 months. Others went through mergers and acquisitions processes, which preserved jobs and businesses. Many plodded on to successfully pay back the CVA as planned. Still the key for us is we did our best to help our clients and creditors recover from a crisis.It has to be said that even with KSA’s “evangelical zeal for CVAs “ as an insolvency firm, the majority of our work by case numbers is normal voluntary liquidations and administrations. Too many SME directors leave the decision to take advice from the insolvency world far too late. Would we have rescued more of these liquidations had the directors only approached us sooner? Impossible to tell.Our final point would be to funders, lenders, investors, VCs and family office investors. In the main, secured creditors stand outside of a CVA process which can lead to dilution for preferential and unsecured creditors. What do you have to lose by encouraging your clients or customers to take advice on RESCUE options like CVA first?The CVA team at KSA group is made up of creative turnaround advisors, creditor liaison experts, tough debt negotiators, brilliant financial modellers and pragmatic insolvency practitioners. We will always look at rescue and closure options impartially and based upon our professional assessment of viability. Yes many directors come to us liking the CVA option, unfortunately many of these businesses or directors simply don’t have the necessary attributes for a rescue.Now, as a team we have, collectively over 500 company voluntary arrangement deals, built, filed and approved by creditors, we believe we know a fair deal about this rescue tool! Get in touch if your client, customer, investee or your company is interested in leading edge CVA advice. See our expert guide for directors below.DOWNLOAD OUR 79 PAGE GUIDE ON CVAS

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Why We Are Experts At CVAs! Read Our Story Regarding This Rescue Mechanism

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