In the current climate, it is expected that thousands of business will enter administration and Administrators will need to assess each administration on its merits to see if it is appropriate to adopt a light touch approach.
As a result of the unprecedented situation that is being faced by businesses due to the Covid-19 pandemic lockdowns there have been many discussions within the insolvency and legal sectors about how best to rescue struggling businesses.
One of the options that has been the subject of much discussion is the ‘light touch’ administration and we believe this is going to be very popular in the coming months.
Aimed at businesses that were viable before the lockdown, the option to entering into a light touch administration would allow the directors to maintain the day to day control of the business but have the benefit of the moratorium which allows a breathing space from creditors.
The legal authority for this already exists under Paragraph 64 Schedule B1 of the Insolvency Act 1986 whereby Administrators can consent to directors exercising defined powers. The extent of the powers can then be tailored to fit each administration if appropriate.
A Consent Protocol, as this is now becoming known, has been drafted by industry experts and this sets out the mechanism for how a light touch administration can operate. The Protocol suggests that the power directors can exercise is restricted to the day to day running of the business, with strict reporting to the Administrators being required.
Light touch administrations will only work in situations where a viable business existed before the Covid-19 pandemic and where the purpose of rescuing the business as a going concern is likely to be achieved.
Light touch administrations may also prove to be a way to stabilise and/or save companies until the pandemic is over.
In any light touch administration, Insolvency Practitioners will need to closely monitor the activities of directors and the business as the Administrators’ responsibilities cannot be delegated to the directors and the Administrators’ duties under the Insolvency Act 1986 remain unchanged.
Please contact one of the insolvency or banking litigation team at Brecher LLP if you would like further information about this option or insolvency and restructuring generally.
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