Pre Pack Administration – Is It A Good Option?
When a business goes into administration, and it assets are immediately sold to another party, the term used to describe the process is Pre Pack Administration. It is designed to allow businesses to continue trading, under new management, after having achieved as much as possible for the former company’s assets, to eliminate the amount of debt that was owed.
To enable a company to get into a position where it can continue trading, Pre Pack Administrations are sometimes used to help the current management buy the assets of the business, in order to set up a new company that is financially stronger. They can also be used to get the best price for a company’s assets before the publicity of formal insolvency proceedings has a negative impact on their value.
Using the Pre Pack Administration process to place a company in the hands of new management means that, in most cases, the company can become financially viable again. The proceeds from the sale of the company’s assets are used to settle the debts owed to the former business’s creditors. The new company usually retains all the employees of the old business, who do the same job as they were doing before, it’s simply the management of the company that has changed.
Pre Pack Administrations are not always the popular option for dealing with insolvent businesses. As it is the creditors who tend to be the biggest losers, and the least involved, in the whole process, many argue that the process is just a way for companies in debt to continue their business with a clean slate, simply by changing their management. The people that the business owes money to have to simply accept whatever repayment they are offered as a result of the deal.
However, many Pre Pack Administrations are arranged with the knowledge and assistance of Insolvency Practitioners, and are actually designed to get as much value for the creditors as possible, while also ensuring the continuity of the business. If the company simply went through the formal insolvency process, a number of factors could mean the creditors would actually be worse off.
The Pre Pack Administration process has always been an option for insolvent businesses, but it has received much more attention recently, simply due to the larger number of failing business who seek to benefit from it. If your business is in trouble, and you feel this option may be the solution, make sure you get professional advice as soon as possible.
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