Is Pre-Pack Administration an option?

Is your viable business under extreme pressure from creditors? Is the business facing a mountain of debt that makes insolvency likely? If so, pre-pack administration may present the best way forward. It will allow the company to continue doing business while also providing relief from creditors pressing for immediate repayment.

 

What is pre-pack administration?

A pre-pack administration is when a sale of a business is agreed prior to a company going into administration, and the sale effected immediately on appointment of an administrator. The advantage being minimal disruption to operations and the relatively uninterrupted continuation of trade. A recent change in legislation, where the sale/disposal is to a connected person, has introduced the requirement for either creditor approval of a sale or a qualifying report from an evaluator. The change in legislation is simply to increase transparency and ensure that any sale to a connected party is in the best interests of creditors.

 

Pre-Pack Administration: The basics

Pre-pack administration is often the best option for viable businesses that are under extraordinary debt pressure. Whereas liquidation would result in the end of the business, pre-pack administration allows for the establishment of a new business to which current assets can then be sold and staff transferred very quickly. The company is then able to continue – albeit under a new name – while the old business entity is left to deal with the debt problem. Because pre-pack administration allows for continuity of the business and the preservation of jobs, it is the preferred option for companies that still have a robust cash flow and are otherwise viable.

 

Benefits of Pre-Pack Administration

For viable businesses that have simply accrued too much debt, pre-pack administration offers an array of benefits:

• The ability to seamlessly resume operations under a new name.
• The new company hits the ground running as it is able to purchase the old company’s assets such as equipment, property, contracts and clients.
• Employees can be transferred to the new company meaning staff do not become victims of the debt crisis.
• Very little by way of interruption to the company’s normal business operations.

Would your company benefit from a pre-pack asset sale?

A pre-pack administration won’t work for every company with extraordinary amounts of debt. However, if your company still has a viable cash flow and assets a pre-pack administration sale can allow a transition from one business entity to another without having to liquidate assets or eliminate jobs.

If a company still has a robust cash flow, an active client base, valuable assets and the potential for future growth, liquidation in order to satisfy creditors simply doesn’t make sense. This is why pre-pack administration arrangements are sometimes the best option for such businesses.

Requirements

A pre-pack administration can only be facilitated by an insolvency practitioner (IP). However, in order for the IP to institute this type of arrangement the company will need to meet the following requirements:

The company must be insolvent. To meet this requirement company debt must exceed the value of company assets or there must be an inability to pay debts as they become due - often evidenced by receipt of a creditor’s statutory demand for payment.
There must be no realistic chance of recovering from the debt crisis by way of normal business operations.
The new company must be able to pay a fair market price for any assets it purchases and it must purchase those assets using its own capital.

Acting in good faith

If the business is insolvent or facing insolvency the most important thing is that its directors act in good faith. That means keeping the best interest of creditors and employees up front at all times. If you believe the company to be insolvent then you should waste no time enlisting the services of a licenced insolvency practitioner.

Keep in mind that companies that enter pre-pack administration are beholden to the Transfer of Undertaking (Protection of employment) Regulations – often referred to as TUPE.  The regulations are designed to protect employee rights during the pre-pack administration asset sale and compliance is mandatory.

 

Contact TruSolv to learn more about pre-pack administration

If your company is burdened with debt but otherwise viable, pre-pack administration may be the best way forward. You’ll be able to relieve debt pressure on normal business operations and retain current staffing levels.

At TruSolv we offer personalised assistance with this and a full range of other options for companies facing extraordinary pressure from creditors or actual insolvency. Contact us today to learn more about pre-pack administration, as well as other options that may be applicable to your situation.

Get in touch today for FREE to learn more.

We’ve helped numerous UK companies face down the threat of Liquidation by arranging a pre-pack administration. We can do the same for you. You are not alone.

Call us on 0808 196 8676 for FREE and get confidential advice on this and other options for your business. Together, we’ll sort things out.