The owners of The Body Shop – one of the UK’s most iconic and storied beauty and lifestyle brands have placed the company into administration this week. 

Aurelius bought the company six weeks ago and blamed weak trading over the festive period and early January coupled with insufficient working capital. A statement from the board said they hoped to create “a more nimble and financially stable business” and it was an important step in becoming a modern day beauty brand. 

But what does this mean for the company and the staff at their 200 UK stores? What are the owners trying to achieve, what can come next and will this mean the famous green sign disappears from the High Street for good?

We’ll do our best to answer some of the most common questions that have come up right here.

What is administration? 

A business entering administration or just administration is a formal legal procedure where a business is placed under the control of an external manager called the administrator.  

It is their job to protect the interest of creditors and make decisions that will restructure the business to help make it profitable. 

If the company can’t ultimately be returned to profit then they could look to sell it to new owners under a “pre-pack” administration arrangement or ultimately close it and sell company assets to obtain the best return for creditors. 

What is a pre-pack administration?

A pre-pack administration is where an administrator takes over the running of the business specifically to arrange its sale to new owners as soon as reasonably practicable after the business has announced it is in administration. 

The name pre-pack comes from the process that any marketing and sale terms are already agreed (pre-packed) in advance of the formal insolvency. 

A pre-pack deal creates a seamless transfer of assets and employees to new owners. It allows for continuity as the business will remain trading while the transfer takes place, reduces redundancy requirements and keeps a higher value in the business. 

This will ultimately generate a higher return for creditors than if the company was closed and liquidated. 

Why would a business go into administration?

There are several advantages an administration brings rather than just deciding to close a company down and liquidate it. 

It can continue operating and keeping employees working while the administrators oversee the business or look to sell it on to new owners through a pre-pack deal. 

An administration also provides legal protection for a company as any legal actions brought against the business such as statutory demands, winding up petitions or County Court Judgement petitions are suspended for the duration of the process. 

The moratorium also protects the business from actions from their landlords in the event of non-payment of rent for commercial properties.  They are not able to use courts to recover outstanding arrears and cannot order the forfeiture of the lease either. 

If administrators are unable to continue to pay rent and don’t voluntarily forfeit the lease on a location, landlords could make an application to a court to allow them to gain leave to forfeit under those specific circumstances. 

If rent is ceased then the landlord would become an unsecured creditor and would have to make a claim along with others as part of the legal process.  

Is Administration the end of the story? 

No. The business can either be sold as part of the administration to new owners through a pre-pack or can revert to the previous owners once the restructuring is complete and if the business is made profitable once more.  

The administrator can seek a Company Voluntary Arrangement (CVA) deal for any outstanding debt which would see it collectively accumulated and, in return for a proportion of it being written off by creditors, the remainder repaid on a regular schedule of monthly payments until the debt is cleared and the CVA successfully completed. 

Unfortunately not every business can recover from financial difficulties so sometimes the only way forward is through an efficient closure process such as a Creditors Voluntary Liquidation (CVL).  

This enables directors to retain some control over the process and will provide the best way to close.  

The only alternative to this would be creditors taking action into their own hands and seeking to have the company closed through a compulsory liquidation such as through a winding up petition which would ultimately remove directors input.

We’ll continue to monitor this story and others on a weekly basis in our regular news round up but if you recognise some of the same signs in your business then you can also react quickly by getting in touch with us. We offer a free initial consultation to any director or business owner that would like to discuss their company and what options they have to protect and strengthen it in the face of continuing strong economic headwinds.