Social housing servicing group Connaught 'nears administration'

Degenerate

Hmm, we may be talking at cross purposes here. My source was this article I read back two days ago when the news first broke:

http://www.figurewizard.com/article.php/Insolvency_Administration_and_Receivership

All of the company’s computer records are closed as if the financial year has ended on that day. These are then rendered inaccessible to any of the members of the company; directors as well as staff. If you want to keep a record of information on clients, suppliers or prices then your access to it stops at this point.

They will set up a new business to continue trading, usually using the company’s name with ‘in administration’ or ‘in receivership’ tacked onto the end. Stock is sold off aggressively at knock down prices as are fixed assets which are viewed as superfluous to the business and have some significant value; cars owned by the company usually being the first candidates on this list.

Your explanation of what happens to the company in administration is not necessarily contradictory to this explanation of how the going concern is kept running.

Generali wrote: »

My understanding of administration is slightly different.

If a company wants to enter administration they have to apply to the High Court to be able to do so. If they get permission then an administrator (generally a specialist accountant) is appointed.

It's worth noting that on this occasion it was the creditors who called in the administrators, evidently looking to preserve what value was left in a seriously mismanaged company. I'm not sure what, if any, difference this makes.

Whilst a company is in administration, creditors can't sue the company to force it to pay its debts without the permission of the court.

The administrator's job is to try to negotiate with all creditors in order to try to rescue the company as a going concern and that will include people with whom the company has contracts running into the future. At this point a creditor would be unable to rip up a contract without the agreement of the High Court.

Whilst this negotiation is taking place, how does the company obtain the essential supplies it needs to continue as a going concern? Where does the company get it's operating capital, and who would supply such a company, when suppliers are unsecured creditors, and unsecured creditors are likely to get severely burned?

The only solution is to transfer all the assets of the going concern into a wholly owned subsidiary limited company, leaving the liabilities in the parent. This preserves the value of the going concern by enabling people to do business with it, safe in the knowledge they will get paid by a company unencumbered by the liabilities of the parent.

If the company is to come out of administration, all creditors including people with contracts with the company must agree to new terms. If they are unable to do so (the most likely outcome of administration) the company will be declared insolvent and wound up by selling assets.

I believe the new company, that I speculated would be called "Connaught (in administration) Ltd", would be one of these assets for sale.

At this point, people that have contracts with the company being wound up can invoke clauses in those contracts that cancel the contract at that point. As a previous poster stated (and as these guys also state) most local Government bodies have a clause that terminates contracts upon insolvency.

Having thought some more, I was incorrect on this point. I thought the transfer of the going concern would terminate the contractual relationships because the original company was unable to fulfill it's obligations, but thinking about it, it could be said to be fulfilling it's obligations via the wholly owned subsidiary.

Generali

Degenerate wrote: »

Hmm, we may be talking at cross purposes here. My source was this article I read back two days ago when the news first broke:

http://www.figurewizard.com/article.php/Insolvency_Administration_and_Receivership

Your explanation of what happens to the company in administration is not necessarily contradictory to this explanation of how the going concern is kept running.




It's worth noting that on this occasion it was the creditors who called in the administrators, evidently looking to preserve what value was left in a seriously mismanaged company. I'm not sure what, if any, difference this makes.


Whilst this negotiation is taking place, how does the company obtain the essential supplies it needs to continue as a going concern? Where does the company get it's operating capital, and who would supply such a company, when suppliers are unsecured creditors, and unsecured creditors are likely to get severely burned?

The only solution is to transfer all the assets of the going concern into a wholly owned subsidiary limited company, leaving the liabilities in the parent. This preserves the value of the going concern by enabling people to do business with it, safe in the knowledge they will get paid by a company unencumbered by the liabilities of the parent.


I believe the new company, that I speculated would be called "Connaught (in administration) Ltd", would be one of these assets for sale.


Having thought some more, I was incorrect on this point. I thought the transfer of the going concern would terminate the contractual relationships because the original company was unable to fulfill it's obligations, but thinking about it, it could be said to be fulfilling it's obligations via the wholly owned subsidiary.

AIUI, the operating capital when a company is in administration comes from existing creditors. I can see how a bank with an existing debt could be persuaded to pony up a little more money in return for an orderly winding up of the company. Don't forget that an administrator will be dealing with a relatively small number of people on a regular basis and so will have personal relationships with the banks.

Suppliers would insist in being paid in cash. Presumably much of that would be done from the cash freed up from not having to pay the previous bills.

I guess the amount of value left in a company in administration will colour the creditors willingness to venture a little in the hope of gaining a lot. I also guess that part of the skill of being an administrator is being able to recognise the difference between a going concern and a hopeless case!

dopester

Jobs are going at Connaught.

http://www.mirror.co.uk/news/city-news/2010/09/11/jobs-chaos-as-council-repairs-giant-connaught-115875-22553932/