When is pre-pack administration an option?

For some struggling companies the solutions to their problems can be relatively simple to solve, while for others it can be a lot more complex.


Pre-pack agreements refer to a type of administration that sees the sale of an insolvent business and its assets affected as soon as an administrator is appointed.


All aspects of the sale are agreed in principle prior to it taking place, enabling the administrator to enable the sale as soon as appointed.


In certain instances such a procedure can be deemed necessary and it brings with it a range of benefits.


The staff tend not to be affected to the same degree as with other potential insolvency solutions.


Despite this control, the administrator will still oversee the process to ensure that legislation is complied with.


As a result, the sale of the business is completed on a going concern basis, meaning its operations can continue throughout the administration process.


This ensures that the value of any assets is maintained, for example Work in Progress or debtors.


Completing a sale immediately upon appointment can also help to prevent losses in the longer term which could reduce the levels of recovery available to creditors.


This is especially true in situations where it is no longer commercially viable for an administrator to secure funding or to trade a business in order to achieve a sale.


In order to be eligible for pre-pack administration, a company should either be insolvent on its balance sheets or unable to meet liabilities when required.


All actions will be done in the interests of the company and not in the interests of directors while the entirety of the process must be advised to creditors so that they can see that an administrator is acting in their interests.


Essentially this ensures that the process is not used as a way of selling assets back to an individual for below their market value.


By Phil Smith


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