Light Touch Administrations under the new Consent Protocol
Partner and head of business recovery Jason Elliott looks at the recent release of Consent Protocol, its main features and how it will affect administrators and directors.
Details of the ‘Consent Protocol’ have now been released and whilst it is still subject to ongoing review the idea is that it will allow administrators to permit directors to exercise management powers whilst the company is in administration.
Under the normal administration regime, directors have no management powers without the administrators’ consent which is not ordinarily given. However, where a company’s difficulties stem from the COVID-19 lockdown, consent under the new protocol may be appropriate.
The basis of this is that directors will continue to conduct the day-to-day management of the company’s business, thereby saving costs. The administrators would conduct a light-touch administration, undertaking only essential duties and supervising the directors’ attempts to stabilise and rescue the company.
Consent is only likely to be given where administrators are satisfied that the company can be rescued as a going concern, with sufficient working capital to pay key post-administration costs such as rent, salaries, utilities and key suppliers on an ongoing basis.
In this event, the Consent Protocol may be used but as always, administrators will need to consider each case individually and may wish to take legal advice on the exact form of any consent to be given.
Main features of the Consent Protocol
Suggested directors’ powers include:
- Agreeing sales and purchases of stock
- Decisions required in the performance of contracts in the ordinary course of business and
- The payment of employee salaries and key suppliers to ensure ongoing business
To protect themselves, administrators are likely to include specific conditions before agreeing the consent to powers such as:
- The powers granted can only be exercised for the purpose of achieving the rescue of the company as a going concern
- The directors are required to update the administrators regularly on the company’s business
- Directors must inform the administrator of anything that might impact on the ability to rescue of the company
- Directors are to obtain prior written consent from the administrators before paying salaries or other key payments
It is anticipated that once the COVID-19 lockdown is lifted and things begin to return to normal, the light-touch administration could be supplemented by a company voluntary arrangement, or a scheme of arrangement to compromise or reduce the company’s liabilities and secure its long-term viability.
If you would like to find out more or to discuss this in further detail please contact Jason directly, firstname.lastname@example.org .
The information was correct at time of publishing but may now be out of date.