These days businesses are facing huge problems with the recent recession and increasingly business owners seek a pre-pack administration as the key to a growing set of problems.
A pre-pack administration is a legal process whereby a company is packaged wholesale or in part to a third party, who could be the same directors, with the bad parts taken from it and the good parts remaining intact. This is a perfectly legal way of transferring the best parts of the business to the new company, sometimes called a phoenix company, because it rises from the ashes of the old, failed business.
A company which is in trouble will likely be facing one of a series of issues which impinge upon it both financially and legally. These may involve problems with the freeholder of the property, HMRC, suppliers and credit sources such as the bank. PAYE may also be a matter which is causing concern and the business may find that it cannot meet the obligations of its month by month or quarterly invoices in many quarters. The company may have grown bloated with a deadly mix of too large a workforce and a falling market. It may also be that current obligations are killing the business, or that there are obligations legally which it is becoming more problematic to satisfy.
Directors might be threatened by the potential threat of wrongful trading which is hanging over them as the condition gets more precarious. Also there is the matter of personal liability, if any of the directors have offered personal guarantees or if their own assets are associated with those of the company. Here the legal implications can start to be serious. It is such a context that a pre-pack administration looks like an good proposition.
On being advised by a qualified Insolvency Practitioner a thorough report should be drafted and a copy given to all the company directors and possibly also to the bank. In the report various 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 subsequently be held in order to progress forward.
Once a conclusion has been reached it should be the Insolvency Practitioner who oversees the marketing of the business (according to the guidelines known as SIPS). There are several compliance matters which need to be adhered to in any pre-pack administration and this is one of those. Another one is that the company sale must be advertised in the public domain, so unless you retain the right advisor working for your interests, you might find that your company will be bought by a competitor!
