A Pre-Pack Admin is one way to close your old company and open a debt-free new company, whilst almost seamlessly continuing to trade.
Pre-pack administration is an insolvency procedure where a company arranges to sell all or some of its assets to a buyer before appointing an administrator to facilitate the sale
Who should consider a pre-pack?
If the business is failing but has the potential to succeed without some of its creditor and contractual obligations – it can start over in many respects and be transferred to a new company. The new company can be owned by directors of the old company or other third parties.
Is it ethical?
Yes. The proceeds from the sale of assets are distributed to creditors, just the same as if an unrelated third-party purchased the assets during liquidation, except the third-party can be one or more directors of the insolvent company.
How does pre-pack administration differ from normal administration?
In a pre-pack admin, the sale of assets is pre-negotiated before an administrator is appointed, whereas in a regular administration the administrator starts marketing the business after being appointed.
A Pre-Pack administration has been a turning point for many – allowing a failing business to flourish.
Pre-Pack Administration Benefits
Continuity of business
A business may change ownership with minimal disruption to its operation; this can maintain goodwill and customer confidence.
Old company released from contracts
Some contracts of the old business may not be needed by the new company, such as property and equipment leases. These contracts can legally be terminated.
Usually cheaper than administration
This may result in a better return for creditors.
Buy-back as a going concern possible
Directors or third parties have the opportunity to buy back the business, creating a new more streamlined company from the old one.
Ensures you know the cost and outcome before the company formally enters administration.
Provides the same immediate protection from creditors as normal administration.
When can a company consider a pre-pack administration?
1. The business must be insolvent and have no viable prospect of recovery as it currently stands.
2. The insolvency practitioner and company directors must be able to show that no other solutions would be more beneficial to creditors.
3. The purchaser must be able to pay fair market value for the assets out of their own personal funds, whether it be a current director or an unrelated third party.
A win-win, especially for your employees
A pre-pack can provide the best outcome for creditors but just as importantly allows the business to continue to trade. This can be a win-win, especially for your employees
Gary Birchall - Insolvency Practitioner & Insolvency Director
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