Commercial printers to be sold as going concern following administration

Commercial  printers,  Granite Colour Ltd has entered administration following the recent failure of its subsidiary company The Good News Press.

The Good News Press was put into creditors voluntary liquidation on 24^th August 2010. It’s failure resulted in Granite Colour being left with c£120,000 debt which had a detrimental effect on the company’s cashflow.

 The purchase of The Good News Press in February 2010 by Granite Colour Ltd put severe cashflow pressures on the company - which boasted an annual turnover of circa £2.5 million – and the failure is being named as one of the primary reasons for Granite Colour falling into administration.

It is not clear who appointed the administrators for the Essex based company, but a spokesman for them said, “The company’s association with the failed business resulted in certain suppliers insisting on pro forma terms, which put further pressure on cash flow. Finally, the company experienced a drop-off in its sales towards the end of 2010”.

The administrators are already pursuing a going concern sale with a potential buyer and at this time and they have confirmed that none of the 22 staff have lost their jobs at this stage.

When a company enters administration, the directors have no control and may be relieved of their duties and have no further involvement in the business. Often the primary strategy is to trade the business for a short period and sell the business as a going concern in order to achieve a better result for the creditors than liquidation. Other concerns with this procedure are the contracts of the employees of the company in administration. Will the new buyer adopt the employees contracts and transfer them to the newco? 

Another common objective is for the company in administration to exit into a company voluntary arrangement (CVA). This enables the company to restructure the unsecured debts over up to a 5 year period, improving cashflow and enabling the business to go forward and also allows the directors to regain control of the company. This will almost always achieve a better result for the unsecured creditors than selling the business as a going concern.

What directors must always remember is that when a company becomes insolvent, the director’s duty is to the creditors not the company. Failure to recognise this duty may remove the veil of incorporation and lead to a breach of section 214 of the insolvency act 1986 and action being taken against the directors for wrongful trading.  

For more information and advice on any of the above issues, please visit www.companyrescue.co.uk .

Administration in the southeast

I recently worked on an administration in the south for the KSA Group.

KSA director of insolvency Eric Walls was appointed joint administrator by the holder of a qualifying floating charge, after a winding up petition was served on the company in December 2010.

The strategy for the administration was to trade the business for a short period of time and market the business for sale as a going concern. The joint administrators continued to collect the debtor book and looked to complete any ongoing contracts, in order to maximize any possible return to creditors

The director was asked to advise on work in progress and assist with collecting the debtor book.  In some cases, the directors are relieved of  their duties by the administrator and have no further involvement in the company.

During  13 days of marketing, a number of offers for the purchase of the business were considered. One of the main purposes of an administration is to try and secure a better result for the creditors than would be achieved in liquidation.

A purchase was finally agreed with a buyer, who also employed the company’s workforce, thereby saving a number of jobs.

Administration can be a costly process and is really only feasible if sufficient funds can be generated and a better result for the creditors is likely to be achieved.

If the business is still viable but a winding up petition has been served against a company, administration can be a very powerful tool as a moratorium takes effect putting a stop to all action against the company.

In some circumstances, a company in administration can propose a company voluntary arrangement (“CVA”) to its creditors in order to restructure the company’s unsecured debts over say 5 years, thereby hopefully leading to better prospects for creditors and the company going forward.

 The administration period would come to an end with the company exiting into a CVA

A properly constructed and successful CVA will almost always generate a better result for the creditors than liquidation. It can also enable the business to go forward and ideally exit the CVA with the creditors receiving a reasonable dividend over the proposed period.

Please visit www.companyrescue.co.uk for further information on any of the issues mentioned above.

Thames Gateway Chamber of Commerce faces compulsory liquidation

One of Kent’s Chambers of Commerce has ceased trading today in light of a winding up petition to be presented in court.

Thames Gateway (Kent) Chamber of Commerce now faces compulsory liquidation.

The board, which were only elected in January 2010 had decided to seek advice from insolvency practitioners earlier this week after December and January export services revenue was much lower than forecast.

The board also claim that revenue from memberships and cash at bank was lower than expected.

A statement from one of the directors said: "We have been saddened by a number of matters that have come to light which, had they been known to us when we were nominated and elected as directors, would have dissuaded us from accepting."

Although all the circumstances surrounding Thames Gateway (Kent) Chamber of Commerce are not clear, this is an all too common scenario in business.

It is the duty of all directors to be aware of the financial position of the company especially when the company enters an insolvent situation.

If directors are not aware, or they ignore statutory demands, solicitor’s letter s and other threats of legal action, they run the risk of a creditor presenting a winding up petition seeking a compulsory winding up order by the court of the insolvent company.

If the company cannot satisfy statutory demands or other threats of legal action or can’t pay its debts as and when they fall  due, the company is insolvent under section 123 of the insolvency act 1986, then  directors should seek advice from a licensed insolvency practitioner.

If the company continues to trade, the directors run the risk of wrongful trading which is a breach of section 214 of the insolvency act 1986 and can lead to legal action against the directors.

If directors take action early, they can propose a CVA and apply to the court for a moratorium (only available for small companies) or appoint an Administrator in order to stay proceedings against the company and get a better result for the creditors. This would be deemed as taking appropriate action as well as initiating a Creditors Voluntary Liquidation.

If you are worried that your company may be insolvent but still viable, a CVA can be used to restructure the historical company debts and rescue the business from liquidation (CVL).

Why not find out more about any of the issues mentioned above by visiting www.companyrescue.co.uk