F&B administrations: What are the options?

According to analysis by law firm Shakespeare Martineau, the manufacturing sector accounted for 11% of UK administrations during 2023. This translated to 186 administrations from across the sector, a 6% increase when compared with the year prior.

These statistics paint a compelling picture of the struggles that the manufacturing industry, and F&B in particular, have encountered over the past few years during which time factors such as Brexit, Covid, geo-political instability and the cost of living crisis have had a profound impact.

Since the start of 2024, Food Manufacture has reported on businesses entering administration from categories including bakery, brewing and plant-based, and given the gusty headwinds that continue to face the F&B industry, they are unlikely to be the last.

The process of entering administration

With all that in mind, Stockley has offered advice to firms potentially navigating the prospect of entering administration by laying out the process and the options available.

“In the vast majority of cases, administration is used to reorganise or realise the assets of insolvent companies,” ​he told Food Manufacture.

Stockley explained that when a firm is deemed insolvent under the definition of the Insolvency Act 1986 (which states that it is either unable to pay its debts or its assets are exceeded by its liabilities), it will seek advice from an insolvency practitioner who will offer administration as a possible option, with the other option likely to be liquidation.

This process can occur in two ways – either by court order upon a formal application or by the filing of documents at the court either by the company, the directors or the holder of a qualifying floating charge over the company's assets.

“When a company enters administration, an insolvency practitioner is appointed as the company's administrator,”​ Stockley explained.

“The administrator takes over the control of the company's business and assets from the company's directors, in order to achieve one of the statutory purposes of administration.”​

These three purposes are as follows:

• The rescue of the company as a going concern
• The achievement of a better result for the company's creditors as a whole than would be likely if the company were wound up
• The realisation of some or all of the company's property to make a distribution to one or more secured or preferential creditors.

“As soon as reasonably practicable after appointment, the administrator must then send notice of the appointment to the company and the creditors,”​ continued Stockley.

“The administrators must also publish notice of the appointment and advertise the appointment in the London Gazette and in any other publication or manner the administrator thinks appropriate.”​

The period of administration can run for up to 12 months, after which it will need to be extended following an application to the court. Once the administration ends the company will be either dissolved or liquidated depending on the circumstances.

What are the options once a firm has gone into administration?

Once a firm has appointed administrators, they will do what they can to achieve one or more of the purposes of the administration and must carry out their functions in the interests of creditors as a whole, while performing those functions as quickly and efficiently as is reasonably practicable.

“The specific options available will depend on the specific company and so there is no prescribed list of options,”​ Stockley explained.

“However, the administrators can do any the following things in order to achieve one of the objectives for which they have been appointed.​

• Take control and possession of the company's property ​
• Sell or otherwise dispose of the company's property and take any necessary steps which will assist in realising the company's property ​
• Bring or defend legal proceedings either on behalf of the company or as a result of unlawful transactions by either the company or its directors​
• Make any payments necessary to allow the carrying out of the administrator's functions ​
• Carry on the company's business​
• Take or surrender a lease of any property on behalf of the company ​
• Make any arrangement or compromise on behalf of the company ​
• Investigate the actions and transactions of the company and its directors, making personal claims against the directors for unlawful conduct if need be​

“The administrators will invariably both reduce the workforce, scale down the company’s operation and sell the company’s assets.”​

Stockley concluded by advising any business that is facing significant financial pressures to seek advice from insolvency professionals sooner rather than later.

“They may be able to salvage something from these difficult circumstances, whereas a business that tries to plough on in the hope its situation will improve, is much more likely to lose everything,”​ he added.

In other news, the European Commission has fined Mondelēz International €337.5m for hindering the cross-border trade.​​