What are the main benefits of a pre pack administration agreement?
Since the financial crisis has impacted on so many UK businesses, an increasing amount of those in trouble have turned to the option of administration.
It represents a potentially effective way of finding a solution when a company is struggling significantly and, as a result, the process has gained real popularity.
Approximately one quarter of all administrations are pre packs each year, while around 80% of these are sold to parties with interests already in the company.
It was originally designed to make the process more transparent for creditors and to ensure that fair value was obtained for the assets of companies.
There are some key advantages which make this type of agreement very appealing to many struggling businesses:
Continuity
Pre pack administration allows the business to continue trading while a purchaser is found.
Assets can be purchased from the administrator while the company remains firmly protected by law as long as the necessary plans and contracts of purchase are in place.
Employees can be transferred from the old company to the new, while any branding can follow the company if necessary to ensure a marketing structure is not unduly affected.
As a result, in most instances there is little or no interruption to the business which limits the impact the change may have on the market value.
In most cases, pre packs represent a quick rescue strategy which ensures that the fallout from the sale is minimised.
Lower costs
Carrying out a pre pack administration costs less than some other options – there is no need for an administrator to find funding when trading the business.
As a result the whole process, including preliminary marketing and valuation work as well as discussions with creditors, can be carried out quickly and with the minimum of fuss.
The whole matter can be completed in a short timeframe if necessary.
By Phil Smith