BHS went into Administration on the 25th April 2016. Administration is an insolvency process (when a company does not have enough to pay what it owes to its creditors), usually lasting a year and is an option when, for example, it’s possible to “rescue” the company as a “going concern”.
What does it mean for the company?
Administration means that the company is under the management/control of an Administrator, who is a qualified insolvency practitioner with wide ranging powers, very specific legal responsibilities and objectives, including duties to be independent and to act fairly and in “good faith”.
For BHS, part of those duties will be to consider whether it’s possible for some or all of the company/branches to:
- keep trading or
- be sold as a “going concern” to someone else
An Administrator will usually make a decision within 8 weeks of being appointed and other steps they could take include:
- selling assets to raise money
- closing the business (if there is nothing to sell)
- making an arrangement with creditors to pay at least some money back over time (such as a Company Voluntary Arrangement)
What does it mean for the directors?
On Administration a director’s powers are curtailed and remain so unless the company comes out of the Administration (starts trading again). Directors can’t interfere with the Administrator’s role and must provide any required information (it’s a criminal offence not to).
What about the employees?
Losing jobs is not always inevitable because, for example:
- if the business (or part of it) is sold the employees’ contracts of employment are likely to be protected by law (Transfer of Undertakings (Protection of Employment) Regulations)
- the Administrator may keep employees working as usual and if this continues for more than 14 days after the Administrator’s appointment they “adopt” the employee’s employment contracts
In the case of BHS, which was sold by Sir Philip Green’s Arcadia group for £1 in 2015, we’re unlikely to see any strategy other than sales of some of the stores to other retailers. This will inevitably result in job losses for most of almost 11,000 employees.
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