Once the Company’s assets have an agreed sale and price, the Company then enters Administration so that the sale can take place. This process ensures that the business can continue without major disruption to the staff or suppliers of the Company and usually a quick sale limits disruption to trade. It’s not unusual for the assets to be purchased over a deferred period with an agreed repayment schedule.
With most Companies, the assets of the business hold greater value to the existing Directors. Usually a Pre-Pack sale to a new Company operated by the existing Directors not only provides the best outcome for the creditors of the old Company but it allows the preservation of the business allowing it to continue after insolvency.
Assets that are not sold as part of a Pre-Pack Administration process are usually disposed of by other means and the old Company is then closed down. All monies realised are then used to make repayments to the Company’s creditors on a pro rata basis after the costs and expenses of the Administration have been deducted. As a sale is pre arranged, the Directors have full transparency of what they are required to pay as well as the outcome of the procedure.
Most creditors believe that a Pre-Pack Administration only serves to benefit the new Company in allowing it to continue trading, whilst leaving its debts behind in the old Company. However; this is not the case and the use of a Pre-Pack Administration is often a practical and powerful tool in providing a better return to creditors whilst preserving key aspects of a business.
It usually takes between 1 and 4 weeks from initial engagement with the Directors of a Company to a formal sale of the Company’s assets to the new Company. This process length is determined by the complexity of your business.
There has been a lot of controversy surrounding the Pre Pack Administration process and due to such issues, the Government launched a consultation process on reform. The reforms follow the recommendations of an independent review into pre-packs for the government by Teresa Graham CBE in 2014. A report was issued providing a number of recommendations to the overall process. The pre pack reforms press release can be found here.
The report acknowledged the economic benefits of pre-packs and highlighted the need for greater transparency for creditors, employees and directors in the process, particularly when businesses are sold to so-called ‘connected parties’ – those who are already involved with the company. The reforms, which also include new guidance on marketing proposed ‘pre-packed’ businesses to third parties to get a better deal for creditors, are backed by creditor groups, government, the insolvency profession, and regulators.
Insolvency practitioners are subject to strict codes of practice to avoid abuse - this is called SIP 16 and has been changed to incorporate the above.
Pre-Pack Administration may not be suitable for your business. There are other procedures that may be more beneficial such as a Company Voluntary Arrangement or maybe a Creditors’ Voluntary Liquidation.
For a pre-pack administration to be viable it has to demonstrate that it is in the best interests of creditors and the company.
Fortis are able to assist in providing an efficient service and advice if you believe your Company to be insolvent and we can determine whether a Pre-Pack Administration is the right solution for you if you feel you may still have a viable business.
Please contact us to arrange a free initial consultation in the strictest of confidence.