What happens when a company enters light touch administration?

Light touch administration is a proper process for businesses facing challenges but still functioning well. It’s different from regular administration because the company directors maintain control. During this period, the business keeps operating, aiming for restructuring, refinancing, a Company Voluntary Arrangement (CVA), or a sale as a way out.


What do we mean by light touch administration?

For companies showing strong potential for long-term success, there’s a formal administration option called ‘light touch administration.’

Retail giant Debenhams has already opted for this to safeguard its 142 stores from creditors. While they might be the first on the high street to choose this path, more retailers are likely to do the same.

This method is well-suited for larger companies with a physical presence, especially those hit hard by enforced closures. 

Even if stores are temporarily shut, if there’s a chance for a viable business when things return to normal, light touch administration becomes an appealing solution.


How does the light touch administration process work?

Similar to other forms of administration, the process aims to shield a company from its creditors while handling the company’s affairs and planning a way forward.

Once a company goes into administration, whether it’s a light-touch administration or not, a moratorium is imposed. This stops legal actions from creditors, providing the company with time and space to develop a workable plan for the business’s future.

Options may include continued trading after restructuring or refinancing, entering an alternative formal rescue process like a Company Voluntary Arrangement (CVA), selling the company to a connected or unconnected party, or, in some cases, closing the company through liquidation.


What does light touch administration mean for staff?

In any form of administration, including pre-pack administration, a company can only enter the process if it aligns with one of the three statutory purposes outlined in The Insolvency Act 1986:

  • Saving the company as a viable business.
  • Selling assets to generate funds for distribution to secured or preferential creditors.
  • Attaining a more favourable outcome for creditors compared to winding up the company without prior administration.

Many companies aim to rescue the business and jobs when entering administration. Yet, if the company cannot sustain operations after entering administration and proceeds to liquidation, employees qualify for redundancy pay if they meet criteria like having worked for the company for at least two years.

If the company lacks funds for redundancy payments, the National Insurance Fund (NIF), a government fund, steps in to ensure employees receive statutory redundancy pay and are not financially burdened.


What sets light touch administration apart from other forms of administration?

In many ways, light touch administration is much like other well-established administration procedures. However, the crucial distinction lies in the management powers that are in place while the company undergoes administration.

Unlike other administration methods, the light touch process allows directors to keep managing the daily operations of the business, instead of handing over control to the appointed administrators. 

This is particularly appealing to business owners who have confidence in the long-term success of their venture and wish to continue trading without the risk of creditors taking legal action.

While the light touch process enables the existing owners to keep control of the day-to-day operations, the appointed administrators will still oversee the overall management of the company during administration. 

This might result in restrictions on accessing the company’s funds. The extent of these limitations will be decided case by case, taking into account the reasons behind the company’s financial issues and its overall health.


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How Vanguard Insolvency Rescue can help?

If your company faces financial challenges and you’re exploring the possibility of light touch administration, get in touch with our specialist team today. 

Schedule a free consultation with a licensed insolvency practitioner who can guide you through available options, including the prospect of administration.

Senior Partner at Vanguard Insolvency Practitioners | Website | + posts

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.