Pre-Pack Administration

When a company is financially distressed and under creditor pressure to repay its debts, a Pre-Pack Administration could be the most appropriate option as it is a way of legally selling the business and its assets to a 3rd party, new company or to the existing directors.

In essence Company A sells business to include assets and goodwill to Company B and therefore a Pre-Pack Administration allows the continuity of business under a different corporate veil. The purchasing party does not need to be a corporate entity.

Once it is public knowledge that a company is suffering from financial difficulty this could have the consequence of customers no longer wanting to do business with them or suppliers may stop providing credit which will ultimately result in the position worsening and the value of the company diminishing. A Pre-Pack Administration is discrete and usually a very quick process which helps to protect the value of the business and its assets and in turn maximising what can be repaid to creditors.

The process typically involves the valuation of the business and its assets, once this has been established and agreed the company goes into Administration and then a sale of the business takes place. Once the sale has been completed, funds are used to pay the creditors of the insolvent company.

Once a Pre-Pack Administration has been completed, this results in the old company being liquidated, therefore any remaining debts are written off and the company is released from any leases/contracts or other liabilities.

Advantages of Pre-Pack Administration:

• Allows quick sale of the company to a 3rd party whilst protecting the value of the company in order to maximise returns for creditors

• Allows continuity of the business under new ownership

• Stops the financial situation worsening to the detriment of creditors

• Potentially saves the jobs of  its employees

Disadvantages of Pre-Pack Administration:

• Old company is liquidated

• Creditors of old company most likely will not be paid in full

• Customers and Suppliers of the old company may not wish to do business with new company

• Possible reputational issues for the directors

If you believe there is still value in the company and it can work through its financial difficulties then a Pre-Pack Administration may be the solution you require.

It is important as a Director, that if you believe your company may be insolvent, then you seek professional support as soon as possible. Do not delay this as it may have serious implications against the Directors.

For help on this and other matters please feel free to contact us.