When a company is financially distressed — but its viability as a business is still favourable — pre pack administration could be the most ideal solution to get out of bigger trouble.
Carried out by licensed insolvency practitioners, pre pack is an insolvency procedure that allows a company to sell off its assets to a buyer before the court appoints an administrator who will facilitate and oversee the sale. As its name implies, most of the marketing and sales agreement are done prior to formal insolvency of the company — contrary to the conventional practices where the terms are negotiated only after an administrator is appointed.
How Pre Pack Administration Works
If your company faces overwhelming creditor pressure, you should consider consulting with insolvency practitioners to determine whether pre pack is the best solution to your business’ predicament. During this time, other options will also be examined as your company’s operations, assets, liabilities are being analysed.
If pre pack is seen to be the most plausible solution, the insolvency practitioner you’ve tapped will then create an administration proposal and a Statement of Affairs. These documents bear the estimated administration costs as well as the projected outcome for your creditors.
As the details in these documents are confidential, interest parties are required to sign a confidentiality agreement. Once offers come in (they may even come from competitors or from a “new company” established by the company’s directors/stakeholders), the insolvency practitioner will go over them and ensure that the parties indeed have the financial capability to buy the business’ assets. Then, the most appropriate buyer will be chosen and contacted.
The documents will be submitted to a court and an administrator (it can be the insolvency practitioner) will be assigned to facilitate the sale. A meeting will then be held among creditors to explain the situation and disclose the details stipulated in the pre pack documents.
What Are The Advantages of Pre Pack Administration
Pre pack offers a number of perks for businesses that are qualified to undergo this type of insolvency procedure. The benefits are as follows:
It has little impact on business operations. As pre pack is quickly done and terms are arranged before the actual sale is facilitated, it allows the business to continue its operations, leaving no disruption to trade. The job positions of the employees will also be retained, with the possibility of transferring the employees to the new company once the administration is done.
The value of the company’s assets will be preserved. As any potential loss of trade is prevented, the company will be able to protect the market value of its assets. This will be beneficial to the creditors because the business will be able to make money through the sale of assets and funds will be produced to pay off debts.
You have the opportunity to select the most appropriate buyer. With the help of an insolvency practitioner, you will be able to determine genuine offers from interested parties. From there, you’d have the opportune time to evaluate and select who’s most qualified to have the business.
It helps protect the reputation of the business. With minimal business disruption and with the benefits offered to both the company and its creditors, the reputation of the business will be preserved and protected.