The initial steps to considering a pre-pack administration agreement
Pre pack insolvency is a procedure whereby a restructuring plan is agreed prior to a company declaring its insolvency.
The sale will be agreed and the administrator will then effect the sale immediately or shortly after their appointment.
Normally an administrator would market the business and carry out the sale following his appointment, but in these cases it is possible to speed up the procedure.
This speed is crucial in maintaining value in the company as this can quickly diminish if news of financial difficulty becomes widespread.
Staff and customers can quickly lose confidence and this can pile on the pressure to an already struggling organisation.
Who will find a pre pack to be most useful?
Pre packs can be used across a variety of companies, but predominantly those in the service and construction sectors use them as a practical solution.
The pre pack will see the sale of the business and assets agreed prior to a formal insolvency procedure and are ideal for companies looking to retain staff.
This keeps their confidence at reasonable levels while traditional insolvency methods can result in widespread job losses across a company.
Staff transition from the old company to the new is usually relatively high and can be considerably better than if a business sale is carried out.
Furthermore, a pre pack administration agreement is usually a better way of ensuring that secured creditors get greater returns than if assets were sold off normally as part of an administration process as it enables value to be retained.
In the service industry especially, the vast majority of value in a business is not in the form of assets and buildings but in the value of its staff. Ensuring staff retention and morale is crucial in these circumstances as it is the staff that will likely drive the new business forward.
Pre pack agreements are a valuable restructuring tool in the right circumstances but early specialist advice is a necessity.
By Phil Smith