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Covid-19 Rescue Administration for Companies in Financial Difficulty
One of the insolvency processes available to a company in financial difficulty is administration. The primary purpose of administration is to rescue a company as a going concern and achieve a better result for creditors if a rescue is not reasonably practicable.
In response to the financial difficulties arising for many businesses as a result of the current Covid-19 crisis that would otherwise have been viable and to rescue a company as a going concern, a consent protocol has been introduced to allow directors of a company in administration to continue to run the day to day business of their company under the administrator’s supervision without seeking creditor approval.
The consent protocol is intended to provide a long term solution to what is hoped to be a short term problem. It is also referred to as a “Rescue Administration”.
The main features of the consent protocol are:
- The identification of broad management powers which can continue to be exercised by directors such as the payment and management of employees, the acquisition and disposal of stock and the entering into and performance of obligations required under contracts. Restrictions on the exercise of powers are also imposed such as the ability to negotiate or vary contracts and borrow new money; and
- The identification of specific conditions the directors must comply with in order to exercise management powers such as the maintenance of books and records, preparation of regular management accounts and the administrator being given access to bank accounts. If such conditions are not complied with, the administrator will be entitled to terminate the arrangement; and
- The directors being obligated to report periodically to the administrator and notify the administrator of any information that could suggest to a reasonable person that there is no longer any reasonable prospect of rescuing the company as a going concern.
It is believed that the consent protocol will help to facilitate the stabilisation and preservation of a company in administration until the Covid-19 crisis has ended. It is anticipated the protocol can then be supplemented either by a consensual arrangement, a Company Voluntary Arrangement (see our other blog which provides a quick guide to this), a Scheme of Arrangement or a Restructuring Plan so that the company can come out of administration as a going concern.
Disclaimer – This article contains information on current legal issues applicable at the time of printing. Please note there may have been changes subsequently which have not been incorporated into the material. This article is intended for information purposes only and its content should not be applied to any particular set of facts or relied upon without legal or other professional advice.