If your company is struggling to pay its debts but could be viable if it was restarted, then a pre-pack administration might be the right solution for you.
A pre-pack sale is a legal insolvency procedure whereby the directors of an insolvent company sell the business and its assets at market value to a new or related company that is often made up of the same directors. These directors can then hire existing employees and produce the same goods or services from the same promises, but without the burden of debt.
Pre-pack administrations are common in the UK with over 100 pre-pack sales taking place every month. Essentially, with a pre-pack administration, a company can be restarted without any of its previous debt, effectively preserving an insolvency company in a new but unchanged form.
When is a pre-pack administration appropriate?
In order for a pre-pack to be an option, there must be a viable business to save and the business must be sold at a fair market value. The aim is for the sale to be completed as soon as possible, shortening the transition period between owners and minimising any disruption and uncertainty.
How does the pre-pack process work?
If you believe a pre-pack administration is right for you, or if you are currently facing financial difficulty and are either looking for recovery and turnaround options or procedures to wind up an insolvent company, read on to find out more about how pre-pack administrations work:
The Pre-Pack Process
1. Register a new company
A new limited company will have to be registered at Companies House, however, it’s important to note that if the directors have a history of non-payment and taxes to HMRC, then the new company may not be allowed to be registered until a cash deposit has been taken.
2. Appoint an insolvency practitioner
The directors of the old business then need to appoint an administrator (usually an insolvency practitioner) to handle the pre-pack sale. The administrator will then instruct an independent valuer to value the company assets.
3. Sale of assets
Once the company assets have been valued, the administrator will create a sale and purchase agreement for the new company to buy the assets. After this, everything will be legally transferred to the new company.
4. Creditors meeting
A creditors meeting will then be held to confirm the sale of the business. At this stage, the administrator will have to provide a detailed report as to why a pre-pack administration was justified as the most appropriate insolvency procedure.
5. Liquidation of the Old Company
The final stage of the creditors meeting is the recommendation of the old company being liquidated. If this is accepted, any remaining assets that were not previously sold will then be distributed among the creditors.
What are the pros and cons of the pre-pack administration?
The main advantage of a pre-pack is the continuity of your business. However, pre-pack administrations have generated some negative publicity, especially if the former directors are seen to be simply getting rid of debts and unwanted contracts. Here is a list of the pros and cons:
- Your business can continue to operate
- It’s fast and cost-effective
- There are higher returns for creditors
- The company could be sold to a competitor
- The new company will need to be funded
- HMRC could demand a VAT security deposit
How McAlister & Co can help
For further advice and information on pre-pack administrations, contact McAlister & Co today. The sooner you seek advice, the more choices you will have – so speak to our team of experts and take back control today.