Why could a pre pack administration be the best option to take for my business?
Pre-pack administration agreements exist in the context of administration to describe the process of selling business assets immediately following administration.
This is not a new restructuring strategy, but their use is increasing in light of the recent financial crisis.
Pre-packs can result in a speedy and usually smooth transfer of business, which helps to drive down the costs of the administration process, offering a better return for creditors.
Growing influence in the UK
In 2011, approximately one quarter of all administrations were pre-packs, with around 85% of businesses sold to individuals already linked to the companies concerned.
The process has received some negative publicity, but it is vital to remember that the businesses were already insolvent prior to any administrator appointment.
As a result there is no protracted process that ends in liquidation and the loss of jobs for a greater number of people.
Allowing everything to keep running
A pre-pack administration is seen as a valuable process that enables the key aspects of the business to remain largely the same.
The system is recognised by the courts as a restructuring process in appropriate circumstances and usually no court intervention is required ahead of a sale.
Often, when details of the administration are leaked it becomes a lot more difficult for businesses to retain staff, supplies and customers.
This is incredibly important in the service industry because much of the value of the companies are their staff rather than their physical assets.
The erosion of people’s confidence in a business can have very damaging consequences in a very short space of time.
As a result a pre-pack is an efficient way of dealing with the administration process and ensuring that as little value as possible is lost from the business.