Jason Elliott, our Head of Business Recovery, reviews the recently announced Consent Protocol.
In this summary, he will look at its key features, as well as considering the impacts it could have on Administrators and Directors.
Table of Contents
- Details of the Consent Protocol
- Impacts of the Consent Protocol
- What are the suggested Director powers?
- Support for Directors
Details of the Consent Protocol
The details of the ‘Consent Protocol’ are now in the public domain. During this period of ongoing review, the intention is for Administrators to permit directors to exercise management powers during the time that their company is in Administration.
This is a key difference, as during a normal Administration regime, directors would not have any management powers unless they specifically receive the Administrators’ consent, which is not usually given. This new protocol seems to be in specific recognition of many companies whose financial problems may stem directly from the COVID-19 lockdown.
Impacts of the Consent Protocol
Under these new temporary measures, directors could continue to take on day-to-day management of their company, saving costs in the process. Alongside this, the Administrator could operate a light-touch Administration, where they would only carry out essential duties with the aim of supervising the Directors’ attempts to rescue the company and achieve financial stability.
It is only likely for consent to be given in the event that Administrators are satisfied a business can be rescued as a going concern. This would require adequate working capital to be able to cover the main post-Administration costs on an ongoing basis, including rent, salaries, utilities and key suppliers.
What are the suggested Director powers?
The Consent Protocol could then be used, but Administrators will consider each case on its merits, and may want legal advice on the specific nature of any consent, with suggested Directors’ powers including:
- Agreeing sales and purchases of stock
- Decisions required in the performance of contracts in the ordinary course of business
- The payment of employee salaries and key suppliers to ensure ongoing business
Administrators are likely to look to include specific conditions to safeguard themselves before they agree the consent to powers, with conditions including:
- The powers granted must be exercised with the aim of achieving the rescue of the company as a going concern
- Directors must update the Administrators regularly on the company’s business
- Directors are required to inform the Administrator of anything that might impact on the likelihood of rescuing the company
- Directors are to obtain prior written consent from Administrators before they pay out salaries or make any other key payments
Support for Directors
The expectation is that at the point COVID-19 lockdown is lifted and companies can return to relatively normal operation, the measures on light-touch Administration may be supplemented by a Company Voluntary Arrangement, or a scheme of arrangement to reduce the company’s liabilities and secure its long-term viability.