Zushi Games enters administration

UK publisher Zushi Games has entered administration, reports MCV.  It had previously published games including Premier Manager and Jig-a-Pix.  It’s always a shame to see a company go into administration, but it’s worth bearing in mind what administration is and what it is intended to do.  Read on for more…
What is administration?
Administration is a legal procedure which companies must enter into when they become insolvent.  ‘Insolvent’ means the company can no longer continue as a going concern and has a two-part legal test: (i) if the company cannot pay its debts as they fall due, or (ii) if the company’s assets are worth less than its liabilities.  If that test is met, and the directors conclude there is no prospect of saving the company, then they are under a legal duty at that point to trigger administration.
In practical terms, triggering administration means an insolvency professional (often a specially trained accountancy firm) takes over full control of the management of the company, with a view to either (i) trying to rescue the company as a trading business and bring it out the other side of administration whole; or (ii) if that is not possible, to sell the company and/or its assets to try to satisfy as many of the creditors as possible.
In other words, administration does not necessarily = death of the company.  The administrator is under a duty to try to achieve the best result he or she can, which means trying to keep the company afloat.  In this regard, administration is similar to the objectives of Chapter 11 bankruptcy protection in the USA (albeit the legal regimes are quite different).
All of which makes administration sound far easier than it actually is.  In reality, administration is messy, complicated and often drawn-out – as you’d expect when a business is on its deathbed.  In particular, it’s worth bearing in mind that it is not just the company or directors which can trigger administration – substantial creditors of a company can also start administration.  And, when they do, they usually want to get paid as much as possible, as quick as possible.  Then there’s the competing/conflicting demands from other creditors, plus directors, employees and shareholders.  Like I said, it gets messy and complicated.
It already sounds a little like Zushi Games’ administration could be getting complicated, with its co-founder and chairman Ian Stewart declining to comment further “until the ongoing litigation processes are complete”.  It also appears (says MCV) that there is a receivership action against one of its properties; the details on that are pretty scarce, and it could in reality be one of several different flavours of legal action, but none of them are particularly good for the company.
On the other hand, one of the increasingly popular/controversial solutions to a debt-laden but otherwise asset-rich company entering insolvency is a pre-pack administration (this is what happened with the insolvency of Oxygen Games which I wrote about previously) or a ‘fire sale’ administration, either of which involves a quick sale of the business/valuable assets to a single buyer who takes over the whole shindig (rather than breaking the company to sell up piecemeal to several buyers).  We’ll have to see whether anyone puts in an offer like that for Zushi.  Otherwise, unfortunately it could well be looking at a long, drawn-out process before this is over…
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