Discussing UK law. Links: swarb.co.uk | law-index | Acts | Members Image galleries

What triggers administration

What triggers administration

Postby steve » Sat Jan 03, 2015 5:33 pm

A certain business went into administration on Christmas Day leaving thousands of its workers including my OH short of a few thousand pounds.

It was stated that it had to go into administration on that day because "trading insolvent was illegal". Fair enough.

So, speculating, what dramatic event might have happened just before Christmas day that triggered this event?

Given that the run up to Christmas was a peak period for the business, why didn't it go bust in November? Or survive until the Christmas returns had been totted up to prove that a black hole existed?

My speculation would be that the writing was on the wall well before Christmas (managers at two competing businesses were openly talking about the failure weeks prior to Christmas), but the owners had a degree of control over when the administrators were called in. E.g. they could decide when to call in their own unsecured loan to the business.

So they chose the time when the unsecured debts owed by the business were at the highest level, and the debts owed to the business were at the highest level. This would minimise the loss on the secured loan that the owners had provided the business.

Is it lawful to run a business in such a way?
Is it possible for the creditors to find out more?
steve
 
Posts: 159
Joined: Fri Nov 23, 2012 11:59 am

Re: What triggers administration

Postby Smouldering Stoat » Sat Jan 03, 2015 5:48 pm

I can't comment on the case in question other than to speculate, but it is worth noting that Christmas Day is one of the Quarter Days on which rent is traditionally due to be paid. I suppose that many businesses over the years must have gone on trading until Christmas Eve in the hope of trading out of their situation, and then become insolvent when they couldn't pay the rent as it fell due.
Smouldering Stoat
 
Posts: 6337
Joined: Thu Nov 01, 2012 6:31 pm
Location: Near the Creek.

Re: What triggers administration

Postby dls » Sat Jan 03, 2015 7:07 pm

Of course it might be that they maximised the delivery of christmas presents.
Or that this is their best period, and there was a hope that they might trade out of the doodoos, but that getting the figures, it was clear they had not.
Or that a particularly large debt fell due for payment
Or that the bank pulled the plug

In reality these are never clear decisions. They involve many imprecise judgments. Typically they await advice from accountants and lawyers.

Whenever the decision is taken very many people will be disadvantaged. They will never escape criticism. Sometimes that criticiam will be deserved and sometimes not. Rarely will anyone without proper access know.

I do not know the details, but it has been suggested that anyone who wanted to know should have known the company was always and at best precarious
David Swarbrick (Admin) dswarb@gmail.com - 0795 457 9992
User avatar
dls
Site Admin
 
Posts: 12252
Joined: Thu Nov 01, 2012 1:35 pm
Location: Brighouse, West Yorkshire

Re: What triggers administration

Postby Hairyloon » Sat Jan 03, 2015 7:08 pm

A cynic might suggest that administration is triggered when somebody decides they can make the best price from carving up a company...
Take me to your lizard...
User avatar
Hairyloon
 
Posts: 10071
Joined: Thu Nov 01, 2012 3:12 pm
Location: From there to here and here to there... Funny things are everywhere.

Re: What triggers administration

Postby dls » Sat Jan 03, 2015 7:13 pm

Whatever we suggest, we none of us know.
David Swarbrick (Admin) dswarb@gmail.com - 0795 457 9992
User avatar
dls
Site Admin
 
Posts: 12252
Joined: Thu Nov 01, 2012 1:35 pm
Location: Brighouse, West Yorkshire

Re: What triggers administration

Postby Hairyloon » Sat Jan 03, 2015 7:21 pm

dls wrote:Whatever we suggest, we none of us know.

I had taken the question to be a general one, prompted and exampled by the specific.
We don't know the specific, but we ought to know the general, and the rules which apply to it.
Take me to your lizard...
User avatar
Hairyloon
 
Posts: 10071
Joined: Thu Nov 01, 2012 3:12 pm
Location: From there to here and here to there... Funny things are everywhere.

Re: What triggers administration

Postby atticus » Sun Jan 04, 2015 10:37 am

Administration is an insolvency procedure.

Insolvency is when there is not enough money to go round.

Administration usually happens when it is considered that at least some part of a loss making business can be saved. This is usually done by carving out that part and selling it. This raises some money for creditors, usually the secured creditors (and the insolvency practitioners). The viable part is resurrected, often saving some jobs, and the rest is left behind.

The alternative is liquidation, which almost never produces a better outcome for any creditor or employee.
User avatar
atticus
 
Posts: 19847
Joined: Sun Nov 11, 2012 2:27 pm
Location: E&W

Re: What triggers administration

Postby Hairyloon » Sun Jan 04, 2015 11:59 am

atticus wrote:Insolvency is when there is not enough money to go round.

If money keeps going around, then it is often not a problem, but many creditors have the ability to call in debts on demand which can give them the ability to stop a company dead.
If the administrators are in cahoots with the creditors or the competition, then this leads to very dodgy possibilities...
Of course, the administration companies are all run by frightfully good chaps who wouldn't do such a thing, in just the same way as the banks are run by frightfully good chaps who wouldn't fiddle the interest rates...
Take me to your lizard...
User avatar
Hairyloon
 
Posts: 10071
Joined: Thu Nov 01, 2012 3:12 pm
Location: From there to here and here to there... Funny things are everywhere.

Re: What triggers administration

Postby atticus » Sun Jan 04, 2015 12:09 pm

A creditor is entitled to be paid. Non payment/slow payment is often a major problem for many businesses. They are entitled to demand payment, and to sue, serve statutory demands etc.

Secured creditors may enforce their security. Some forms of security give a power to appoint administrators.
User avatar
atticus
 
Posts: 19847
Joined: Sun Nov 11, 2012 2:27 pm
Location: E&W

Re: What triggers administration

Postby steve » Mon Jan 05, 2015 7:37 am

I read in various places that directors have responsibility to all creditors, but it's a bit unclear how this relates to the different level of creditors.

So a director realises on Friday that the company is going down and there is not quite enough money to cover the secured creditor's loans. He has a choice:

- Close the company on Friday, lose a lot of income from the Monday-Wednesday up to Christmas which are likely to be big earning days. This results in increasing the debt of unsecured creditors (self-employed couriers) but decreasing the debt over-all thereby helping the secured creditor (the company owners).

- Wait till Christmas. This reduces the debt over-all but only helps the secured creditor (himself) and increases the debt to the self-employed couriers.
steve
 
Posts: 159
Joined: Fri Nov 23, 2012 11:59 am

Next

Return to Company Law

Who is online

Users browsing this forum: No registered users and 1 guest