Could pre-packaged administration be a solution for your struggling firm?
A Pre-pack can be used whereby an insolvent business will be sold and its assets redistributed as soon as an administrator is appointed.
Any marketing and sales processes will already be completed, with the sale agreed in principle by the proposed administrator.
It means they oversee the process to ensure that all relevant legislation and regulations are met, while any directors remain in control prior to administration.
Agreeing the sale of an insolvent business and its assets before an administrator is appointed has several benefits.
The business is sold on a going concern basis, meaning operations can continue even when an administrator is appointed.
This helps to preserve the value of any assets which can become more difficult to realise following an administrator being appointed.
It may also not be commercially viable to trade a business or secure funding in order to achieve a sale, so a pre-pack arrangement can reduce losses which subsequently could reduce what is available to creditors.
In order to agree a pre-pack administration arrangement, a company should be insolvent, either in terms of its balance sheet or if it is unable to meet its liabilities.
A proposed administrator must also do his job with the interests of any creditors in mind, acting for the company and not for the directors during a pre appointment period.
As part of this, all parts of the process must be openly disclosed to creditors so that they can be satisfied that the administrator has acted in their interests.
Essentially, this ensures that a pre-pack is not merely a tool which is used to sell a company’s assets back to the directors at below market value, while leaving behind any previous liabilities.
It is important to stress that a failure to meet the legislation surrounding pre-packs can see the sale being voided by any liquidators that take over the case.
By Phil Smith