A light touch or sleight of hand?

One of the reasons administrators and insolvency practitioners (IPs) don’t get a lot of media coverage is because there’s a lot of misconceptions about what they actually do.


When is a light touch sleight of hand? A new regime that isn’t.

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Some see them as corporate grim reapers whose arrival signifies the imminent demise of any business that appoints them. 

 

Others see them as petty bureaucrats who are never happier than when they’re demanding to know the number of pencils a company has purchased and used between March 1993 and June 2007.

 

The truth is they’re more like business mechanics.

 

It’s their job to look under the bonnet of a misfiring company to see what’s broken; whether it can be repaired or replaced and if a whole rebuild is justified in the first place. 

 

And like any good mechanic, they have a range of specialised tools available to them that are suited for the different tasks they face. 

 

Instead of a wrench, screwdriver and socket set, an administrator can use Creditors Voluntary Liquidations (CVL), Company Voluntary Arrangements (CVA), Company Dissolutions and many other appropriate techniques and instruments when they’re needed, depending on the issue and the solution. 

 

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Which brings us back to “light touch” administration.

 

What is occurring, specifically with the case of Debenhams, is that while the administrators have ultimate responsibility and authority bequeathed to them as part of the administration process, they have decided to delegate the day-to-day management and short-term functions of the business to the existing management team. 

 

As well as being a cost-effective solution, it also provides a degree of continuity and certainty to employees at a stressful time and allows the administrator to concentrate on their main task – devising a strategy to enable the company to survive in the longer term. 

 

There are exceptions to every rule and if an administrator decided to bring in their own management team to run a company then they’d be within their rights to do so. They remain ultimately legally responsible for any decisions taken while the company is under their purview. 

 

As for a “light touch” – there’s been no magic wand waved and no new rules have been plucked out of thin air. Nothing has fundamentally changed.

 

What has happened is that the Department for Business, Energy and Industrial Strategy (BEIS) suggested some tweaks to existing insolvency law including introducing a moratorium on debt recovery that would bring increased protection for companies facing insolvency and allow additional time for administrators to build a restructuring and rescue plan. 

 

However any proposed changes would not become law until they were passed in Parliament and to date, no timetable for debate has been published. 

 

Chris Horner, Insolvency Director of Business Rescue Expert, who has personally overseen numerous administrations cuts to the chase: 

 

“Administration is not a one-size-fits-all solution and never has been. 

 

“One of the reasons why the UK’s insolvency regime is respected across the world is because it retains a good balance between the interests of debtors and creditors while still being agile and entrepreneurial enough to adapt to the circumstances it applies to.

 

“Light touch” administration is nothing more than a regular administration but the way it has been applied in one specific case happens to be different from another one.

 

“It’s like describing your doctor as a magician because he gave you one medicine to treat pneumonia and a different one for indigestion.” 

 

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One of the reasons you hire a professional is not only to do a job but to apply the benefits of their advice they’ve built up from years of training, practice and experience.

 

Insolvency Practitioners are constantly staying up-to-date with legal and practical changes and new support measures that have been unveiled in the past month and will be announced in the weeks and months to come. 

 

If you think you need to get a professional’s opinion of your business and it’s prospects at the moment then now is the time to get in touch. 

 

We’ll arrange a convenient and free virtual initial consultation to discuss what issues you’re facing and how you can best meet them so you can be stronger when life returns to something resembling normality.

 

If insolvency law changes then you’ll read about it here first. Now if you’ll excuse us, our phone just rang. 

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