Norton Motorcycles’ rise out of administration has reminded us that administration need not spell the end of a business. This is something for businesses to bear in mind during the current Covid-19 pandemic. The breathing space afforded by administration could help struggling businesses weather lockdown without slipping into insolvent liquidation.
The revival of Norton Motorcycles
British brand Norton Motorcycles is renowned for its ‘super premium’ high quality hand built bikes at the top end of the market, as well as its performance in the racing sphere. In its heyday, everyone from Clint Eastwood to Keanu Reeves owned one of these prized bikes. However, the 2008 financial crash saw Norton lose much of its former glory, and after struggling to pay its debts the manufacturer went into administration in January this year.
Far from spelling the end of Norton however, this month Indian giant TVS Motors has bought the historic brand out of administration for a reported £16 million. TVS will rejuvenate Norton with a hefty investment, and has big plans to expand the business. The classic bikes will be brought into the 21st century with the incorporation of electric powertrains, updated safety systems and assisted riding.
How can you use temporary administration to survive Covid-19?
Many other companies in the automotive industry have been affected by the COVID-19 pandemic. Many are struggling to pay their debts as races are cancelled, plants are forced to close, and sales fall as customers stay off the roads.
The Government has introduced several temporary measures to assist businesses at this time, including an eviction ban, the Coronavirus Business Interruption Loan Scheme (CBILS), and the Job Retention Scheme (CJRS). However, not all companies are eligible for these schemes, or able to access them in time.
Temporary administration is another tool which can be used to create a breathing space for struggling businesses to survive the current crisis. Despite general perception, the primary aim of administrators is to rescue a company as a going concern, and help companies remedy their solvency issues.
In administration, companies enter a moratorium during which no legal claims can be brought against them. The Government has also announced that an additional period of moratorium will be introduced, details of which are yet to be published.
The safety net of moratorium could allow a business to be preserved until lockdown is lifted, and gives companies time to reshape their finances through investment, restructuring, or agreements with creditors brokered during moratorium. We often consider administration as the last resort of a failed businesses, inevitably leading to a winding up. This is not true; as Norton has shown, if used wisely moratorium can be the perfect recovery period.
What is a ‘light touch’ administration?
If a company is unable to pay its debts, directors and shareholders can apply for administration. However many will never do so because they believe in the following myth:
MYTH: when a company goes into administration, directors must hand over all control.
REALITY: where a company can be ‘rescued’, directors can retain day-to-day control over their business and assets, under an administrator’s overall supervision. This is known as a ‘light touch’ administration (LTA).
- Directors do not need to seek administrator or creditor approval before making business decisions.
- Companies can take the benefit of moratorium without handing over the reins.
- The government has suspended wrongful trading rules, which means that companies can keep trading throughout administration, even if they might go into insolvent liquidation.
- Directors must regularly report to the administrator (for instance if they no longer believe that the business can be rescued).
The last few months has seen a rise in these ‘light touch’ administrations, which have most notably been employed by Debenhams and Carluccios. LTAs are rising in popularity because the challenges posed by lockdown restrictions are only temporary, and businesses are likely to continue as a going concern once they are lifted.
It will not always be appropriate for a business to go into administration, but administration should not be written off simply because of the stigma surrounding it. LTAs can give a useful space in which to pause, rethink, and ultimately survive the current crisis.
How Blaser Mills Law can help?
If you would like further information on the administration of businesses, please get in touch with the Commercial team on 020 3814 2020 or contact Robert Cain at [email protected]