Light Touch v Pre Pack - Explaining the difference

One of the things we like doing when working with our fellow North East businesses is demystifying the process around administration and insolvency work.

For a lot of companies, all they understand about our work is what they see in news reports about large companies in difficulty – that an administrator or insolvency practitioner comes into a company to administer the last rites and sell bits off to the highest bidders. 

 

As one example, this outcome is at the end of various circumstances that have led to it and is very much a last resort after the insolvency professional will have tried several other procedures, tactics and approaches to lead to a better outcome for the business, its directors and staff. 

 

We’re always happy to take the time to explain exactly how we can help businesses get on top of any growing debt problems before they become a critical mass. It also helps owners and directors become more active in their own recovery and rescue if they understand what they can do to help. 

 

Other questions we get asked more and more is when phrases become popular within the media to describe our work that aren’t necessarily accurate or refer to something else entirely. 

 

One that we’ve seen crop up a lot recently has been “pre-pack administrations.” We often see it transposed with “light touch administrations” as if they were interchangeable terms for the same thing when they actually mean two different processes altogether. 

 

Get comfy and let us explain…

 

We’ll assume you know what administration is but in case you don’t – administration is where an external manager (the administrator) – is appointed by the company or its creditors – to come in and see if they can turn the business around financially. 

 

If they can’t then they will look to sell it wholly or partly in order to protect the interests of the creditors. 

 

Light Touch administration

 

When it comes to “light touch” administration, it’s almost self-explanatory. 

 

The administrator has a lot of legal responsibility once they’ve been appointed and have to bring themselves up-to-speed with the company and its issues very quickly. 

 

If the business already has a functioning and competent management team in place then it’s useful for the administrator to continue to let them manage the business on a day-to-day basis while they look to complete a successful strategy to enable the business to survive and eventually thrive. 

 

The administrator would retain ultimate control and authority but will delegate the essential tasks to the people who are already doing them. 

 

This is the most cost-effective way of keeping a business running and also provides continuity of service and some certainty to employees at a difficult and uncertain time for them.

 

All of this is within the scope and gift of the administrator and they always have the right to bring in their own management team to run a company if necessary. 

 

They’re legally responsible for any decisions taken while the company is under their purview so will want to ensure they trust the management.  

 

A “light touch” administration is not a one-size-fits-all solution by any means. While it might be the ideal fit for one business, it might be completely inappropriate and unworkable for another depending on the circumstances. 

 

A good example of a recent light touch administration bringing success is the sale of nightclub and bar operator Deltic to Scandinavian operators Rekom.   

 

The current management at Deltic remained in their roles along with the other staff and venues that they hope to eventually reopen when the Covid-19 situation allows including PRYZM in Newcastle.  

 

Pre Pack administration

 

A pre pack administration is different from a light touch one in several significant ways. 

 

The main one being that while “light touch” brings an element of business as usual to the company in administration – a pre pack sale is a whole new beginning. 

 

Once an insolvency practitioner is instructed, but the company is not yet in administration, they market and agree the sale of the business, ready to complete as soon as possible once it enters Administration. 

 

The pre-pack title comes from the marketing of the business for sale and agreement of sale terms before the formal insolvency process is instigated. Everything is “pre-packed” and ready to go. 

 

It’s a relatively simple procedure but has many moving parts and has to be managed by a qualified insolvency practitioner to make sure it completes satisfactorily with nothing going wrong in the purchase process – which it always can. 

 

Similarities to “light touch” administration include the business continuing to trade without any interruptions and staff retaining their jobs and contractual employment rights while the assets of the old company are transferred to a brand new legal entity without the debts of the former accompanying them.

 

The management team of the previous business are allowed to purchase the company’s assets themselves and use them to set up a new legal company while the business continues to operate but only if the administrator is happy that they’ve got the best price possible from them for the creditors.  

 

A functioning, trading business will nearly always be a better opportunity for creditors to be repaid than a liquidation but this is one of the judgements that an experienced and qualified administrator has to make when it comes to a feasible business turnaround.

 

Robson Scott Associates have been doing their best to restore, restructure, reboot and rescue businesses from all across the North East and beyond for over 15 years.

 

2020 has been a landmark year for a lot of the wrong reasons and has seen several otherwise profitable and viable businesses fail or become trapped, unable to trade or reopen their doors due to logistical and safety directives imposed on them. 

 

Let our knowledge and know-how help you right now if this sounds like what’s happened to your business this year. 

 

You can get in touch with us to arrange a free initial consultation where we can discuss what your options are and what you can do so that when 2021 comes in – you’re still here to take advantage of whatever it brings.