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The circumstances:
The directors of Brightyellow Limited
realised that the company had entered a downward financial
spiral. The directors found themselves in a catch-22 situation
in that the company had insufficient funds to finance the
redundancy packages and other one off costs that a re-organisation
would involve.
The company was not exposed to any winding
up petitions but creditors were being paid only when their
invoices had become overdue for payment.
Entire layers of overhead needed to be
removed from the business so that the organisation could once
again concentrate on its core business.
Review by the Insolvency Practitioner (IP)
The IP's review led the directors of
the company to conclude that "the business" of the
company could only survive if the business was sold as a going
concern. Members of management had expressed an interest in
buying out the company.
The directors and the IP worked out a
proposed package for the sale of the business to management.
A prepackaged "deal" was then provisionally agreed
with the management.
Appointment of Administrator
The directors then appointed the IP as
administrator to the company. There was no need for an application
to court in the circumstances that obtained.
The Administrator
The fact that an administration was in
place froze all previous creditors.
The administrator forwarded his report
and the "pre-packaged" proposal to all of the creditors.
A creditors meeting was then held. At the creditors meeting
the creditors resolved to approve the sale package provided
one or two matters relating to the terms of the proposed sale
were changed.
The Future
Brightyellow Limited realised much more
as a result of this going concern sale than would have been
achieved if there had been a forced sale of assets.
Following the sale the administrator
paid off all of the creditors arising from his trading period
and settled the banks charge and the preferential creditors.
The administrator then held a surplus
of £100,000 (which was the approximate sum anticipated
in the original proposal). The £100,000 was then handed
over to a liquidator who was able to make a dividend of 35
pence in the pound to unsecured creditors.
The administrators initial report had
shown that those creditors would have been unlikely to have
received anything at all if the company's business had not
been sold.
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