Thousands of jobs are at risk after convenience store chain McColl's collapsed into administration. More than 16,000 are employed by the chain and their future is uncertain while the business owners rush to save the company.
The firm confirmed on Friday afternoon, May 6, that it has appointed administrators from PriceWaterhouseCooper. News services are reporting that both Morrisons and Asda have both put in bids to try and buy McColl's, which could mean that the company remains a fixture on UK high streets.
Administration is a process used to try and save a business when it can no longer afford to operate. The process takes the power away from the directors of the company and instead into the hands of a professional insolvency practitioner.
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But what exactly happens when a business enters administration? And what could this mean for McColl's?
What happens when a company enters administration?
When a business enters administration it is put into the hands of an administrator, who must be a licensed insolvency practitioner. It is the administrator's job to use the company's assets to repay the company's creditors - those it owes money to.
Assets are anything that has value or can be sold. This can include cash in the bank, computer equipment, or even buildings. Meanwhile, creditors are classed as anyone the company owes money to. Creditors often include HMRC, staff who are owed pay, other companies who are awaiting payment, banks who have loaned the business money, and utility companies.
After being appointed an administrator is given a period of around eight weeks to send out a proposal to the company's creditors with a formal administrative proposal. This outlines the administrator's plan about how it will repay the company's debts, the status of the company, and how much the administrator will be paid.
Does entering administration mean a company will shut down?
Not necessarily. In many cases, businesses can enter administration and still continue to operate, although they will likely have to go through some dramatic changes. If the business has a solid foundation then a business could still survive.
One way to do this is through a Company Voluntary Arrangement - often known as a CVA. A CVA allows the company to reorganise its business, including restructuring its debts and renegotiating its lease agreements. The latter will need the agreement of the company's landlords but if they agree it could see their outgoings significantly reduced. Other debts may be written off while others may be paid back over time.
Another option is a pre-pack administration. This is where the business and its assets are sold to a new company. When this happens the new company will not be liable for the debts of the business it has just purchased.
However, even if the company does continue it may look drastically different. Businesses may be forced to close unprofitable parts of the business, meaning branches could be closed and staff could be made redundant.
If the business cannot be saved it will be placed into liquidation. This means its assets will be sold and the company will be dissolved.
What will happen to McColl's?
It is still too early to say exactly what will happen to McColl's. Rumours suggest that there is interest from Morrisons and Asda in acquiring the business, meaning it could still survive.
However, a deal is not guaranteed and if it fails around 16,000 staff members could find themselves without a job. Even if a deal is agreed, McColl's could still close some branches.
An insolvency sale could take place as soon as Monday. The company has said it hopes the administrators will help to “implement a sale of the business to a third-party purchaser as soon as possible”.
