Pre-Pack Administration: A legitimate means to restart an Insolvent Company?
If your company is struggling to pay its debts, but viable if it could be restarted, then a pre-pack administration may be the right solution for you.
A legal insolvency procedure, pre-pack administration allows a company to be liquidated and sold to a new board of directors, often made up of the previous company’s.
What is Pre-Pack Administration?
A pre-pack administration (or sale) is a process where the directors of an insolvent company sell an existing insolvent business and its assets at market value to a new or related company, often made up of the same directors. These directors can then hire existing employees and produce the same goods or services from the same premises.
In essence the company is restarted without any of its previous debt, effectively preserving an insolvent company in a new but unchanged form. Pre-pack administrations are common in the UK with over 100 pre-pack sales every month; national examples of pre-pack administrations include retailers: Whittard of Chelsea, La Senza and The Officers Club. A summary of the pre-pack process can be found below.
If you believe a pre-pack administration is right for you or if you’re looking for other business recovery and turnaround options, or procedures to wind up an insolvent company, contact us for free professional and confidential advice.
The Pre-Pack Process
[su_spoiler title=”1. A New Limited Company is Registered” open=”yes”]
A new limited company will have to be registered at companies house. The directors of the new business are often the same as the old, but they do not have to be.
If the directors have a history of non-payment concerning VAT and taxes to HMRC then a new company may not be allowed to be registered until a cash deposit has been taken.
[su_spoiler title=”2. Appoint an Administrator/Insolvency Practitioner”]
The directors the old business will need to appoint an administrator (usually an Insolvency Practitioner). The appointed administrator will appoint an independent valuer to value the company assets.
[su_spoiler title=”3. The Sale of Assets to the New Company”]
The administrator will create a sale and purchase agreement for the new company to buy the assets. After which everything will be legally transferred.
[su_spoiler title=”4. Creditors Meeting”]
A creditors meeting will be held, confirming the sale of the business to current creditors. The administrator will have to give a detailed report as to why a pre-pack administration was justified as the most appropriate insolvency procedure.
[su_spoiler title=”5. Liquidation of the Old Company”]
During the creditors meeting, a recommendation of liquidating the old business will be discussed. If accepted any remaining assets that were not sold previously will be distributed among creditors.