What Is A Pre-Pack Administration?

You’ve probably heard of companies ‘going into administration’.  If the company is insolvent and facing serious threats from creditors, a licensed insolvency practitioner can be appointed by the court as an administrator. This protects the company from creditor claims and legal action, allowing the business to be restructured or prepared for sale.  

While a trading administration protects the business, it can be expensive and also creates uncertainty and delay.  Continuity is really important.
For most businesses, a pre-pack administration is a better option.

A pre-pack provides more certainty, continuity and control.  Trading in administration can seriously damage the value of the business, but a pre-pack preserves this value by allowing the assets to be sold as a pre-agreed deal to new or even the original owners, shareholders or directors.

Effectively, the business can continue in a new form, with a much greater chance of success.

For a free consultation and advice, phone 0800 0385 140, or use our online contact form.

What is Administration and a Pre Pack?

There are two main types of administration: trading administration and pre-pack. Both involve appointing an insolvency practitioner (IP) as ‘administrator’.

In a trading administration, the company trades forward under the protection of the administrator until it is restructured, sold or closed. An insolvency practitioner is appointed to take control of the company and will often immediately start the process of restructuring the business. This might mean attracting finance or private investors, or cutting back on overheads, costs and under-performing areas of the business. If the problems are resolved, the company can be returned to the control of the directors.  However, because to the high cost, this only happens in practice with large, high profile businesses.

With a pre-pack, everything is planned in advance, so the administration itself is very short. There are certain codes of conduct that apply to Insolvency Practitioners who market the business, called SIP 16. It’s certainly not a free for all, but effectively the pre-pack is an agreement to sell the company as soon as it goes into administration. The administration and sale can be on the same day, so there is no need for the IP to run the company.

A pre-pack administration is a powerful business turnaround technique. And remember, there is nothing wrong with the business being sold to the original directors and shareholders. This essentially allows the debts of the old company to be written off. The business is restructured for success and continues to trade. Most of the time you can keep the same premises, suppliers, staff and company name.

Pre-pack administration sometimes has negative connotations when former directors and shareholders are seen to be walking away from liabilities. However, the business was already insolvent and the pre-pack administration process is designed to preserve enterprise and jobs. It’s not about punishing directors and business owners for a business failure.

The process of getting a company into administration is usually straightforward.  With the directors’ authorisation, we can file a notice of intention to appoint administrators with the court.  This stops all pending legal recovery action, like winding up petitions, utilities being cut off or even eviction from commercial premises.

If your bank or a third party has a debenture it becomes more complex. Call us for further information.

Is a pre-pack administration right for me?

A pre-pack administration is a great solution for any situation which requires urgency, continuity of trading, and the protection of assets for all stakeholders.  There may be immediate pressure on the business that means you have to react quickly. If the company is under threat from a winding up petition, notice has been received that bailiffs are about to visit and remove assets, or your landlord has given notice on your lease, a pre-pack could be the right solution for you.

As insolvency procedures go, pre-pack administration is relatively expensive. It isn’t always the best solution for small businesses, where a comp nay voluntary arrangement to a  creditor’s voluntary liquidation might be more appropriate. However, we can help you avoid unnecessary costs, steer you around legal pitfalls and get a successful result for all concerned.

If you have bank loans or commercial funding, substantial stock values or multiple property leases or property assets get in touch and we’ll help you decide if administration is your best option.

What are the benefits of a Pre-Pack?

Pre-pack administration
is great if your situation requires quick and decisive action:
  • The business gains legal protection from winding up petitions and other actions.
  • The directors and business owners keep control as the business isn’t traded by the administrator.
  • The value raised from the sale of the business is better when sold quickly to the original management team and owners. This continuity is good for employees and the business itself.
  • A pre-pack often offers creditors the best return from the insolvency of the old company.
  • The new company can trade debt-free and legally terminate contracts which are no longer required.

If you’ve received a winding up petition or your company is under pressure, get in touch today by filling in our simple form or call NOW on 0800 0385 140.

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