Administration – recognising the value
IN January my colleague Julie Galbraith wrote about the pressures facing the retail sector following a very challenging 2018. Sadly, the challenging trading environment continues, and not just on the high street.
At the end of July the Insolvency Service published its statistics for the second quarter of 2019. In England and Wales, the construction, retail, hospitality and manufacturing sectors all ranked in the top five sectors for number of insolvencies. In Northern Ireland the statistics recorded 88 insolvencies in the period April – June, which included five administrations.
Just this year famous names to have entered administration include Patisserie Valerie, LK Bennett, Debenhams, Jack Wills and in the time since the Insolvency Service report they have been joined by local business Wrightbus. Then on September 23 long-established travel agents Thomas Cook entered compulsory liquidation.
So what is administration, and how does it differ from liquidation?
In a liquidation the business is judged to have no prospect of recovery and is shut down. In an administration the objective is to rescue the company to allow it to continue trading - or, if that is not possible, to obtain a better result for the company's creditors (who may include its suppliers) than would be possible if a liquidator simply shut the doors.
A licensed insolvency practitioner is appointed administrator and takes over management of the company's affairs. While in administration the company is protected from claims by creditors which might otherwise have exacerbated cash flow pressures and forced it into liquidation.
In the very earliest days of an administration those affected by it can take some comfort from the fact that the company's directors, a qualified insolvency practitioner and in some circumstances its bankers, have determined that the business (or some part of it) has sufficient value to give it a chance of survival.
Of course, there can be immediate consequences for everyone connected with the business. As we have seen with Wrightbus, the business may be unable to continue normal trading activities, which can lead to employees being made redundant. The company's suppliers may find that not only have they lost a valued customer, with the obvious risk to their own commercial future, but they may not be paid sums due, whether on time, in full or at all.
At the time of writing it is too early to predict the outcome for Wrightbus, but we still see Patisserie Valerie, Jack Wills and Debenhams trading in one form or another, which shows that administration can give struggling businesses a chance to recover.
As detailed in a report commissioned by Manufacturing NI, despite challenges in recent years, manufacturing remains one of our most successful sectors, so long may this continue.
:: Mark Taggart (email@example.com) is partner/head of commercial litigation & debt recovery at DWF Belfast (www.dwf.law)