What is Pre Packed Administration?
A Pre-Packed Administration is a formal insolvency procedure which provides for the business and assets of a Company that is insolvent to be sold as part of an agreed sale upon the appointment of an Administrator.
For a pre-pack Administration to take place, the directors of the Company must take various steps to protect not only their own personal interest, but perhaps more importantly, those of the Company’s creditors. The board of directors, when considering a pre-pack sale, should be taking professional advice from a Licensed Insolvency Practitioner before such a process is contemplated.
A pre-pack should only be undertaken if it presents to the Company’s creditors a better outcome than would ordinarily be achieved through another formal insolvency procedure, such as Creditors Voluntary Liquidation, Company Voluntary Arrangement or a standard Company Administration.
By undertaking a pre-pack sale, it is usual for the business and assets of the entity that enters into the formal Administration procedure to be sold to another Company to ensure that there is a continuity of trade with as little disruption as possible.
Why and when should a pre-packed sale be considered?
- If the Company is insolvent but does have a business that is sustainable without its current debt burden.
- If certain loss making divisions of the Company need to be closed but the Company does not have the resources available to effect such a restructure.
How do I arrange a pre-pack administration?
- First and foremost, advice is needed from a Licensed Insolvency Practitioner. They will provide the board of directors with professional advice and determine whether a pre-packed sale is appropriate.
- If a pre-pack sale is achievable, and of course viable, then valuations of the Company’s assets need to be obtained. These valuations will be provided by independent agents.
- If the Company has a debenture holder, their permission is also needed to grant such a sale.
How fast can a pre-packed sale be undertaken?
- A pre-pack sale will usually take somewhere between two and three weeks, depending upon the circumstances surrounding the Company’s affairs.
- The actual sale itself will usually take place immediately after the Company has entered into Administration.
Do I get to buy back my Company’s assets in a pre-pack?
- You will have the opportunity to acquire the Company’s business and assets, subject to the valuations that will have been provided.
- It should be noted that you do not get priority in buying back the Company’s assets.
- A Licensed Insolvency Practitioner will also seek interest from other parties who will also have the opportunity to buy the Company’s assets.
Why should I consider a Pre-Pack Administration?
- It usually allows for a seamless continuation of trade.
- It can be completed in a relatively timely manner, providing as little disruption to the business as possible.
- It can help mitigate the professional costs that would be incurred through another formal insolvency procedure.
- It saves the jobs of the Company’s employees who could, in another formal insolvency procedure, face the prospect of being made redundant.
- It usually results in a higher realisation of the Company’s assets and therefore it provides for a better recovery for the Company’s creditors.
- Any negative publicity that usually attaches to a closure is negated.
- It can help directors who have provided personal guarantees to any of the Company’s creditors mitigate their own personal liability.
- The Company’s debts are left behind for the Administrator to deal with.
What issues should we consider in entering into a pre-pack?
- First and foremost, a Pre-Pack Administration is a formal insolvency process. You will lose control of your business and its assets to the appointed Administrator.
- Consideration should be given to funding the purchase of any assets. It is unusual for an Administrator to sell the business and assets to a connected party by deferred consideration, so if you don’t have the necessary funds to buy back the Company’s assets, a pre-pack might not be best option available to you.
- Diligent forward planning should be undertaken to take into account any negative impact the business will suffer through any pre-packaged sale. It is usual for some suppliers to demand payment upon supply as the Company will have to rebuild its credit scores. It is imperative that you prepare forecasts on a cautious basis and ensure that you have sufficient capital to invest and support the new business in its infancy.
Why should I choose CFS restructuring LLP to assist in a Pre-Pack Administration?
- All advice and guidance is provided by one of our Licensed Insolvency Practitioners. To be appointed over any formal insolvency procedure, including any type or Administration, pre-pack or not, a Licensed Insolvency Practitioner must be appointed.
- Our Licensed Insolvency Practitioners are licensed by the Association of Chartered Certified Accountants and the Department for Business, Innovation & Skills.
- We have offices in the Midlands and London, allowing us to cover the whole of the UK.
- We will provide advice that is concise and in writing.
- All initial advice and guidance is provided free of charge.
- If you decide to formally instruct CFS Restructuring LLP, we have what is acknowledged to be some of the lowest charges in the profession and we will always agree with you at the onset of any formal matter the fees that are likely to be incurred. This is particularly important whereby you may have provided a personal guarantee to one of the Company’s creditors.
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If your Company is suffering financial difficulties and you would like to discuss its affairs to determine if a pre-pack sale is viable, get in touch with Corporate Financial Solutions today for free advice and a no obligation consultation. If you are concerned about the level of fees you have been quoted elsewhere, please feel free to get in touch and we will provide you with the guidance that you need.