Pre Pack Administration
In the current economic climate, many companies in the UK have turned to the Pre-Pack Administration procedure to assist them with overwhelming financial issues, and the stresses that come with them.
What is Pre-Pack Administration?
Pre-Pack Administration is the process where the sale of some or all of the assets of a company is negotiated with a buyer before an insolvency practitioner is appointed as administrator.
The sale is then executed by the insolvency practitioner. The purchaser can be anyone including existing managers, competitors or industry newcomers.
Why use pre-pack?
When a business has the threat of insolvency hanging over them and they looking for ways to rescue the business whilst still retaining the businesses value for both creditors and any potential purchasers looking for rejuvenate the business, a Pre-Pack Administration is often the best choice.
In the pre-pack process, the company is put into administration and then sold shortly after an administrator has been appointed. It is usual that that the practitioner, the bank and the directors will have acquired valuations and agreed a sale price together with drafted contracts before the administration order is made. This enables a more streamlined and fast selling process of the business after the insolvency practitioner has been officially appointed as administrator.
On 1 January 2009, new rules in the ‘Statement of Insolvency Practice (SIP) number 16’ were introduced where the insolvency practitioner (referred to as the Administrator) is required to brief creditors in the full background of their appointment and justify the choice of a pre-pack process for said creditors.
The Administrator is also responsible to provide details such as business/assets, the price paid and any connections that the purchaser has with the company shareholders, owners and directors. The aim of these new rules is to encourage greater transparency in the process, giving creditors more access to information about the owners of a financially troubled business.
What are the advantages of Pre-Pack Administration?
- Returns to creditors can be improved.
- It is an effective way of extracting value from what could be a desperate situation.
- Businesses can be saved, protecting staff.
- Business debts can be written off.
- Supplier networks can be left intact.
- The business can apply to trade under a variation of its former name.
It is not uncommon for a Factoring Company to get involved prior to a Pre-Pack Administration. They would take over the company’s existing book debts and set up a similar facility to acquire the assets on behalf of the Purchasing Company.
For more information regarding Pre-Pack Administration, Company Administration and how Business Rescue Service can help you, please call 0845 468 2395 or visit our contact page for further details.
