At SESCA a few weeks ago, we were fortunate to hear two speakers covering elements of the current decision making process involved in administrations and creditors’ voluntary liquidations. Although a little hampered in his presentation because of the pre-packs session to be held after his, Gerald Krasner once again presented an entertaining and refreshingly common sense approach to the topic.
One key element dovetails particularly well with the feedback coming from recent visits by the regulators. Gerald talked for some time about the need to stand back and look at the case and identify the factors that made an administration appropriate. He explained how certain cases, with potentially high value soft assets that needed the protection of a short period of trading or human resource intensive companies where a going concern or pre-pack sale would result in a TUPE transfer and help reduce the level of creditors were easier to identify than some other situations. We recently saw an administration where the initial argument for an administration appeared weak, because many of the points put forward applied equally to CVLs, but hidden among them was a much stronger argument relating to a hostile landlord.
What came across very clearly from Gerald’s talk, has been seen on numerous regulatory visits this year and is borne out by what we have seen, is that you must have a detailed strategy note early in the case. It must be written and ideally updated as the initial phase of the appointment progresses. Too often we see administrations with no justification and when we approach the IP he tells us of some notes in his diary or his intention to write something up in a few days. The regulators are taking action where they consider administrations have been entered into without justification and as many of you have found out over the years, even if you consider that you have a valid defence or strong mitigation, it is often not cost-effective to take on a regulator once a penalty has been proposed or imposed.
There are reputedly some IPs who gamble on taking unjustified administrations to avoid the Leyland Daf issues in CVLs and the regulators are actively looking to reduce this abuse. It is inevitable, in our opinion, that some IPs who chose the administration route for what they considered, but did not record, to be valid reasons will receive regulatory penalties or face tougher sanctions for making inappropriate use of their licence, when in fact their only error was to think they were too busy to make a file note. Please don’t fall into that trap.
Why not email Bill or Gareth the next time you draw up a strategy note and ask our opinion? We will look at it without charge and give you an informal opinion on potential improvements to its content and the way it is presented. It is a cynical ploy, but if we help you keep your licence, there is a far greater chance that you will come back to us for an external review in due course.
