Pre Pack Administrations

Pre Pack Administration – Maintain uninterrupted business without creditor pressure

 

A Pre Pack Administration (‘pre-pack’ or ‘pre-packaged sale’) is a popular choice for directors when you’re wishing to continue the existing business within a new company. It facilitates the sale of your insolvent business to either existing directors, a trade buyer or a third party. Within a Pre pack the sale of your business and any assets are negotiated prior to the appointment of administrators, rather than after.

The speed of the sale during a Pre Pack Administration allows for the preservation of your asset values, with the intention of maintaining uninterrupted business and consequently saving jobs. As a result, trade can continue as normal but without creditor pressure and whilst releasing unmanageable debts.

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For an honest appraisal of whether a Pre Pack Administration is right for you, talk to our professionals for some honest advice

Whilst the ethical nature of Pre Pack Administration can be called into question, a Pre Pack is often the right answer in certain situations. However, it is important to ensure that it is not a case of ‘out of the frying pan and into the fire’ and you need honest professional advice to know if it is right for you. For instance, given the right conditions, the benefits of a Pre Pack are:

  • Allows for the sale of your business as a ‘going concern’
  • Preserves the values of assets and work in progress
  • The IP pays funds received from liquidated assets to the creditors

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    Our approach to a Pre Pack Administration and the alternatives

    Alternatives to a Pre Pack

    As a director considering a Pre Pack Administration you are likely to be in a situation where you are not able to repay your debts regardless. For this reason, in this situation either Liquidation or Administration are the only alternative options available to you.

    Our approach to Pre Pack Administration

    We have utilised the Pre Pack Administration process on many occasions as an effective business rescue tool. Above all, our skill is in ensuring that it is justified and we have considered and explained all the practical as well legal implications. If you think it seems like a Pre Pack is right for you, talk to us so that you understand the full facts and can make an informed decision.

    We often find that it is not what you do, but how you do it that makes the difference. Our experience in this area can help achieve your aims and keep you out of trouble.

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    Considerations before advancing with a Pre Packaged Administration

    Practical points:

    1. To what extent are you required to provide personal guarantees to cover any deferred sale consideration?
    2. Are you required to provide personal guarantees to a new funder of the business?
    3. Are your customers willing to continue to place orders with you? Most importantly, due to the pre packaged sale will they also be concerned about the viability of the new company and its ability to fulfil future orders?
    4. As a result of a pre pack administration, are key suppliers willing to trade with you, if so, on what terms?
    5. Is it possible you’ll be ‘blacklisted’ in your industry because of the pre pack and what are the consequences?
    6. Is your landlord willing to assign the lease to the premises to your new company?

    Legal considerations:

    1. Despite some of the information being broadcast, particularly on the internet, a director’s first duty is to the creditors. If you act inappropriately, you can suffer significant personal financial and criminal penalties
    2. The Administrator has legal and ethical responsibilities and beacause of this needs to justify the terms of the sale to creditors
    3. An Administrators conduct can be subject to a liquidator’s inspection and/or challenged by creditors. This could result in transactions entered into being overturned with financial and criminal penalties.

    Risks of a Pre Pack Administration:

    1. A Pre Pack if carried out correctly is an extremely useful procedure to enable a business to be continued. However, it must be undertaken with consideration to the obligations of both the directors and the Administrator. Consequently, a failure by either party can lead to significant financial or criminal penalties
    2. Managing the Pre Pack Administration process properly and being seen to be acting correctly, can overcome a lot of potential difficulties. Whilst the pre pack process has become very popular and can appear to be a simple low cost solution to an insolvency, in contrast it comes with its own issues. There is a lot of disquiet on the part of government, the insolvency regulators and significant creditor bodies regarding potential abuse. In particular, there is concern over the values attached to assets sold without the market being tested and whether alterative procedures would result in a better return for creditors

    Finally, if you are considering a Pre Pack Administration you are strongly advised to talk to an expert for professional advice, call us now!

    Talk to industry leading business recovery experts trusted by UK business for over 30 years. Call us now on 01489 550 440

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