As Jessops emerges like a phoenix from the flames following its collapse earlier this year, the HMV saga still rumbles on.

Jessops and HMV both fell into administration in January 2013; Jessops on 9 Jan and all its retail stores ceased trading two days later.  HMV, on 15 January and, although some stores have closed since then, a large number have continued to trade under the control of the administrators whilst a potential buyer is sought.

The administration process has been around for over 10 years and is largely used when there’s something to be salvaged from a business, with the aim of rescuing it if at all possible.  Or, if not, to either achieve a better result for creditors than if it had been put into liquidation, or effect a distribution to preferential or secured creditors.

The differences between administration and liquidation are largely based on speed and cost.  Administration is a court process and is quicker, but usually more expensive, whereas liquidation is cheaper but slower.  Further, it is generally easier to demonstrate that administration will result in a better realisation than a forced liquidation sale, or that there will be a payment to either a secured creditor or employees who have been made redundant. 

Administration is also attractive in that it provides a moratorium from creditor enforcement action that comes into place ten business days before appointment and continues permanently after, which can be very useful in retail situations, when substantial rents are due for payment for a large number of stores on specific dates and time is required to put together a restructuring plan.

It’s likely that in the case of Jessops, administration was initially used to seek protection for the business, but as no buyer could be found, the process became a virtual liquidation in an effort to try to achieve the best results in the circumstances.

At HMV, the moratorium provided protection whilst a plan could be formulated and once in administration, the poorer performing stores have closed, leaving others to trade on under the administrator’s control in order to try to find a buyer.

So it would seem that the difference lies in the potential saleability of the business.  Administration provides the breathing space to assess this and strike the best deal for all concerned – a welcome improvement on the ‘cut and burn’ approach of the past that served no-one well, least of all the creditors. 

  • Neil Bennett is director at Leonard Curtis Business Solutions Group