Struggling businesses should always be aware that there are always a number of possible solutions, no matter how dire things may seem. Both company closure and company rescue are viable options, and, where the latter is concerned, company administration in particular can act as a much-needed lifeline.
Company administration offers immediate breathing space from creditor pressure and the chance for the business to be guided back to stability. There are a number of possible outcomes of this process, but one of the most common is the business being sold on to new owners. This outcome can transform the future of the company, but it also raises an important question: what happens when a company is bought out of administration? In this article, we have outlined how this process works and the immediate implications of buying a company out of administration.
What Does It Mean When A Company Is Bought Out Of Administration?
For financially distressed companies demonstrating some degree of long-term viability, company administration is a suitable next step in challenging times. The administration process essentially allows for the exploration of possible business recovery methods, free from creditor action and under the guidance of a licensed insolvency practitioner. As part of this exploration, the possibility of selling the business and its assets will be considered.
Being bought out of administration therefore means that a suitable buyer steps in to purchase the company and its assets during this process. This deal could take a range of forms, either taking over the entire business as a going concern (retaining staff and premises) or purchasing only selected assets or parts of the operation. The core of the company subsequently survives, and the business is able to continue trading in some of its existing form.
Types Of Company Administration
Exactly what happens when a company is bought out of administration will depend on the exact type of administration being used. There are two types:
Pre-Pack Administration
With pre-pack administration, the sale of the company’s business or assets is arranged before it actually enters into the formal administration process. Then, once administrators are appointed, the sale can take place almost immediately.
Company Administration
In contrast, the more traditional company administration process involves administrators taking control of the business first. They will then explore a range of rescue and sale options over a longer period of time, aiming to find the most suitable buyer and subsequent creditor outcomes from a larger pool of buyers.
What Exactly Is ‘Bought’?
It is important to note that, when a company is bought out of administration, what is ‘bought’ can vary. However, a typical sale will involve physical assets as well as less tangible elements of the business, including its name, brand identity and existing customer base. Through the company administration process, these assets are then transferred to new ownership without the historic debts. Proceeds from the sale are allocated to creditors where possible, while the new owners can then get to work rebuilding the business and creating a more stable operating environment.
Immediate Next Steps
The licensed insolvency practitioner acting as the administrator can only agree to a company being bought out of administration if they deem this to be the most suitable method of rescue. Therefore, once ownership has transferred, priorities must quickly shift to business turnaround. A number of steps will be taken to get this process underway, including engaging with employees, suppliers and creditors, and striving to restore confidence in operations.
To ensure the business is viable, the new owners may also need to initiate a process of business restructuring and make tricky decisions when it comes to cutting costs and finding new supplier relationships. If executed well, it’s these decisions and changes that can help the business turn a corner and strive towards growth once again.
Get Company Administration Advice
Understanding what happens when a company is bought out of administration is just the start of the business recovery process. The circumstances of each business are different, and understanding your next steps is crucial to moving forward in the right way.
With this in mind, it’s important to seek professional advice if you are considering company administration. At Ballard Business Recovery, our team of experienced business rescue experts can guide you through the administration and restructuring process and ensure you have the facts you need to make the best decision for the future of your company. Whether you are considering administration, exploring a pre-pack sale, or simply need to understand your options further, do not hesitate to get in touch with us today.
