Business rescue solutions: pre-pack administration and phoenix companies
As part of the Enterprise Act of 2002, pre-pack administration and phoenix offer insolvency professionals and lenders an opportunity to facilitate corporate and company rescue, improving the outcome for small firms and non-secured creditors.
4R will assist in making a realistic proposal to liquidate the assets and goodwill of the insolvent company. This deal is a pre-appointment arrangement, meaning it is decided upon prior to the selection of an insolvency practitioner.
This method - called pre-pack administration - provides the chance for a new company (the phoenix company) to purchase the assets of the insolvent company on the appointment of the insolvency practitioner.
Pre-pack administration, coupled with a phoenix company, tends to be used in situations where significant value - in terms of bank lending, assets or net worth or bank debentures - is at stake.
For smaller companies, pre-pack administration may be more expensive. In these cases, it can be more cost-effective to pair the phoenix company with creditors' voluntary liquidation. 4R can help you choose the best option for your situation.
The differences between pre-pack administration and pre-pack liquidation
When using a phoenix business to rescue a company, two options to consider are pre-pack administration and pre-pack liquidation.
With both methods, the end result is the same: a new company (the phoenix business) is formed and some or all of the assets of the old company are transferred to it.
- Although pre-pack administration is the more expensive choice to use with a phoenix business, there are a number of reasons why pre-pack administration is the better technique.
- The company is under immediate threat from a winding-up petition
- Notice has been received that bailiffs are about to visit and remove assets
- The landlord is about to distrain on company assets
- Less than 75% of shareholders will consent to place the company in liquidation (this is not necessaril needed in administration)
- The debenture holder has appointed administrators
- Time pressure
Choosing pre-pack administration or a phoenix business
If the business can be salvaged - but for sound legal, financial and time pressures cannot go down the company voluntary arrangement or company voluntary liquidation route - then pre-pack administration may be appropriate. The use of a phoenix business has received some bad press in the past, but it remains an excellent, legal option for restructuring a company.
At 4R, we have had great success in organising pre-pack administrations where all stakeholders, including creditors, customers and shareholders, gain. Typically, the directors of the new company arrange to buy the old company's assets, forming the phoenix business to act as the vehicle for the purchase.
Of course, like many business rescue solutions, pre-pack administration and phoenix businesses have their downsides. But at 4R, we will work closely with you to minimise these problems.
For example, pre-pack administration and the creation of a phoenix business are usually only justified by larger transaction costs. Directors may struggle to raise the required funds to buy the old company's assets and it can be difficult to borrow, as banks do not like to support phoenix businesses. Even when the economy is strong, it is unlikely that a bank will be willing to offer overdraft facilities to a phoenix business.
With 4R helping you through the process of pre-pack administration and the creation of a phoenix company, we will arrange appropriate financing of the new start-up. These funds often come from external partners or via our own parent company, Incubator Capital Partners.
We will work to secure low fees and transaction costs for the phoenix business and we'll ensure that you avoid some of the operational and legal pitfalls, helping to produce a successful outcome for directors, shareholders and employees.
Key benefits of pre-pack administration and phoenix businesses
Pre-pack administration, coupled with the use of a phoenix business, can be a lucrative way to rescue a company, allowing for the best return for creditors and directors.
- The new company can acquire assets and goodwill from the old company
- The debts of the old company are written off permanently
- It is transparent to creditors
- It often achieves a better return for secured and non-secured creditors than liquidation
- The newly company is free from debt and trades from a position of strength
- Continuity with little disruption to core business
- Customers need not be made aware of the changes
- In almost all cases the company can continue trading from the same premises
- Employment contracts and finance agreements can be cancelled or restructured at zero cost
- Preserves employment for key staff and directors
Get 4R's help with pre-pack administration and phoenix companies
If you need hands-on business turnaround experience and believe pre-pack administration and the establishment of a phoenix business is right for your company, then 4R can help. We can even provide solutions if you have debentures or personal guarantees in place.
Over the years, we've helped many clients secure their companies and establish wealth-creating strategies that involve pre-pack administration and phoenix businesses.
Where a company cannot be saved; we will offer business insolvency advice and arrange the right solution for the situation. Options may include pre-pack administration and the use of a phoenix business and we will work with directors and other stakeholders to ensure that they are sheltered from serious personal loss.
To find out about how a pre-pack administration or a phoenix business can help your company, contact us today. We'll be happy to discuss your requirements and provide a free consultation.
You can also apply online for help with pre-pack administration and establishing a phoenix business - the sooner you get help, the better your chances of getting out of debt.
Be sure to check out our news and media section, where you can keep up to date with the latest financial and business news. We also offer free guides and video tutorials, which provide information about our pre-pack administration and phoenix business solutions.