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 .