How A Pre-pack Administration Can Help Ailing Businesses
Nowadays businesses are facing huge problems with the recent recession and increasingly
increasing numbers of business owners are looking at a pre-pack administration as the key to the matter.A pre-pack administration is a legal process whereby a company is packaged wholesale or in part to another person or company, who might be the same directors or shareholders, with the failing parts taken from it and the good parts remaining. This is a powerful and perfectly legal way of transferring the good parts of the old business to the new company, sometimes referred to as a phoenix company, because it rises from the ashes of the old, ailing business.
A company which finds itself in this situation will likely face one of a series of issues which impact upon it both financially and legally. These may involve issues with the freeholder, tax and VAT bodies, suppliers and sources of credit such as the bank. PAYE may also be a growing problem as the business finds that it cannot meet its monthly invoices from many sources. The business may have grown too large with a nasty combination of too many employees and a falling market share. It could also be that current contracts are strangling the business, or perhaps there are necessities legally which it is becoming problematic to satisfy.
Directors of the company might be threatened by the potential spectre of wrongful trading which is hanging over them as the condition gets more precarious. Also there is the problem of personal liability, if any of the directors have undertaken personal guarantees or if their own properties are tied up with the business. Here the legal implications start to become very serious indeed. It is such a situation that a pre-pack administration begins to look like an good option.
On being advised by a qualified Insolvency Practitioner a comprehensive report should be prepared and a copy of this given to the company directors and possibly also to the company's bank. In this report options will be discussed including possible new sources of finance, a company voluntary arrangement (or CVA) and possibly a creditors voluntary liquidation, in addition to a pre-pack administration. A meeting of directors and shareholders should then be held to decide which option to take.
Once things have been decided it should be the Insolvency Practitioner who oversees the marketing of the business (according to established guidelines). There are several compliance issues which need to be adhered to in a pre-pack administration and this is one of those. Another is that the sale of the company must be advertised openly, so that unless you get the right advisor working for your interests, you might find that your business will be snapped up by a competitor!
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