A Pre Pack Administration is where an insolvent company is placed into administration but instead of the administrator completing a sale after breaking up or trading the company for some time whilst a buyer is found for the business & assets he then sells them immediately upon his appointment. In this instance the business is considered viable so a sale is negotiated beforehand (pre-packaged) and completed upon the administrator’s appointment.
Usually the insolvent company ceases to trade and, if a phoenix company is to be set up to act as the purchaser, it starts trading on the day of the administration order as the sale cannot usually be concluded before the Administrator is in control. The advantages of pre-packs are that it is a form of business recovery and can ensure the business is rescued. There is usually a better return for creditors than the alternative like liquidation, and any legal actions either threatened or already commenced against the company are stopped as court protection is given. Another advantage is that staff remain employed as employees are automatically transferred to the purchaser under the regulations laid out. A licensed insolvency practitioner like www.bridgenewland.co.uk will be able to meet with you to review your company finances and decide whether an administration is even suitable for your business. The insolvency practitioner should be made aware of the details of any interest which you or any other party has in the business and assets. A value is then instructed to access the value of the business and its assets and these should always be discussed with the intended purchaser.
Action is then taken in order to appoint the insolvency practitioner like www.bridgenewland.co.uk as the administrator of the company and this can be by various methods. Before terms are agreed and a sale price is decided the sale agreement is drafted. Administrators are then appointed and the sale is signed off shortly after the appointment of the administrator is confirmed. All creditors are written to and assets are taken control of if there are any that are not included in the sale. The purchaser takes over trading from completion but doesn’t inherit the insolvent company’s debt unless specifically agreed. The disadvantages are the often the sale is a sale back to the same directors and the same shareholders. This means it can appear underhanded to the creditors who have lost out and give this there is also a risk that the purchaser may go insolvent again and therefore is sometimes considered a trading risk.
Often businesses and assets are not openly marketed for sale which gives rise to questions as to whether amounts received for the pre-pack sale is the best price and in the best interest of the creditors. Pre-pack administration is most suitable when assets exceed approx. £30,000 and this can include assets. If debtor collections are also likely to be more successful if the customers receive continuity of service it will also be suitable for pre-pack administration.