A pre-pack administration is a legal process wherein a business is sold altogether or in parts to a third party, who might be the same directors, with the negative elements taken from it and also the functional parts remaining. There is also a pre pack insolvency which does about the same thing. It is a powerful and perfectly legal method of transferring the best parts of the business to the new company, often referred to as a phoenix company, because it rises from the ashes of the old, failed company.
A business which is in this situation will probably face one of several problems which impact on it both financially and lawfully. These may involve difficulties with the freeholder, tax and also VAT bodies, suppliers and sources of credit such as the company's own bank. PAYE may also be a matter which can be causing concern as the business finds that it cannot meet the obligations of its month simply by month or quarterly bills from many sources. The business might have become too large with a horrible synthesis of too large a labor force and a falling market. It could be that existing contractual needs are killing the business, or perhaps there are necessities legally which it is increasingly arduous to fulfill.
Directors of the company might be compromised by the potential specter of wrongful trading which is moving closer because the condition gets more risky. Also there is the matter of personal liability, if any of the directors have given personal guarantees or if their own properties are tied up or linked to the company. Here the legal implications can be severe. It is in this context that a pre-pack administration starts to look like a good option.
On taking advice from a licensed Insolvency Specialist a thorough report needs to be prepared and a replicate sent to the company directors and perhaps as well as towards the company's bank. In this particular report options will be shown including possible new sources of fund, a company voluntary arrangement (or CVA) and possibly a lenders liquidation, as well as a pre-pack administration. A meeting of directors and shareholders should then be kept in order to progress ahead.
Once things have been decided it must be the actual Insolvency Practitioner who supervises the marketing and advertising of the business (according to established guidelines known as SIPS). There are a number of compliance concerns which need to be adhered to in any pre-pack administration and that is one of them. Another one is that the sale of the company must be advertised, so unless you retain the right advisor acting for you, you might find that your business will probably be snapped up by a competitor!
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