Pizza fans across the UK may have been shocked by the news on 20 October that 68 Pizza Hut restaurants and 11 delivery sites are to close after DC London Pie Ltd, which owns the UK franchise, entered administration. The move will lead to the loss of more than 1,200 jobs. It had recently become clear that the company was in financial difficulty when HMRC issued a winding up petition.
However, the silver lining was revealed shortly after administrators were appointed, with the news that American Hospitality giant Yum! Brands had bought the remaining 64 UK restaurants in a so called ‘pre-pack’ administration deal in a move that would preserve the jobs of nearly 1,300 employees.
A ‘pre-pack’ administration is a situation where an insolvent company arranges the sale of its assets or business prior to the appointment of an administrator, with the administrator completing the sale shortly after their appointment. This can sometimes be the best way to ensure the company’s creditors can be paid and some element of the business can be rescued. As such, a significant number of administrations now involve ‘pre-pack’ deals. This does often mean that the company’s creditors might not know about the sale until after the fact. As such, administrators are required to obtain the approval of an independent evaluator and provide a detailed report to the creditors explaining why this course of action led to the best possible outcome for them.
That half of the UK Pizza Hut business will continue to operate shows the value of the administration process more generally. While a liquidation would be more likely to see the end of a company completely, in terms of the 1986 Insolvency Act, the purposes of an administration are:
(a)rescuing the company as a going concern, or
(b)achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration), or
(c)realising property in order to make a distribution to one or more secured or preferential creditors.
Furthermore, while a company is in administration, creditors are prevented from taking any action against the company except with the permission of the administrator or the court.
The administration process can be commenced either by a formal application to the relevant court, or by the filing of certain documents at court in what is known as the “out-of-court” route.
If your company is in difficulty and you think administration might be the best route forward to ensure business can continue, jobs can be retained, and creditors satisfied, it is worth taking detailed legal advice. At Thorntons, our corporate and court teams have extensive experience of handling administrations and have established relationships with insolvency practitioners. You can contact Thorntons (01382 797068 or 0141 483 9029) for a confidential discussion on whether this is the correct option for your company.
