Pre-pack Administration – transfers a business to a new entity minus its debts

Why do a pre-pack administration?

A pre-pack administration provides a seamless transfer from one business entity to another. It is the easiest way of preserving the value in a business and maintaining continuity with customers and staff.

Administration is one of a number of formal insolvency processes. The Pre-pack term refers to the fact that the sale of the business is ‘Pre-packaged’ prior to the formal process taking effect.

What are the benefits of Pre-pack Administration?

It depends who the owner of the pre-packed business is going to be, but they can vary depending on your situation

  • New lease of life for a business burdened by historic debt
  • A new business retaining assets, customers and staff of the old one
  • A new business minus the debts of the old one
  • Often viewed more positively by the outside world than entering liquidation 

How long does a pre-pack administration take?

We have completed a pre-pack administration inside 4 days, but this is the exception rather than the norm. Buying a business through a pre-pack administration tends to take a minimum of 2-3 weeks from consulting us until it happens.  This is because of the marketing and valuation of the business that must take place before a sale occurs to make sure the right price is achieved.  This timescale is the same when directors buy their own business back through this process.  During this process your business can often be given protection from creditor action from the moment you consult us up to the point the pre-pack administration takes place.  Get in touch for more information.

Who can buy the business back and how?

Anyone can buy the business back from the Administrator.  In smaller companies very often the director of the company going through the Pre-pack Administration buys the business back. 

In other scenarios a third party may wish to acquire a business via a pre-pack whilst the current directors wish to walk away, possibly because they have simply ‘had enough’ or cannot see how the business will work in the future.  Alternatively, business owners sometimes wish to walk away but need help to find a buyer – all of this can happen through the pre-pack process and maximise value for all concerned.

The way it is bought back is by simply paying for the business and assets you want – you don’t have to buy them all, but it is often easier if you do.  Terms for the sale/purchase will need to be agreed via a contract, but this is all part of the process.

Why do a pre-pack admin rather than liquidate my company?

There are many reasons to favour a pre-pack admin over a liquidation, winding-up or a CVA. It all comes down to your specific circumstances and what you are trying to achieve. One key difference is the time-scale of a pre-pack because it is often shorter and doesn’t involve a cessation in trade. Contact us to learn more about the reasons why you may want to use a Pre-pack Administration.

However, if you are running a business that is struggling financially, it can be an invaluable way out of your predicament and put you quickly on the road to recovery, which can also relieve an incredible amount of stress and reduce the risk of personal liability arising from wrongful trading.

I’ve heard some criticism of pre-packs, why?

The main reasons a lot of people believe pre-pack admins are used by directors wishing to do an underhand, confidential deal with the Administrator, whilst others dislike it because it can allow a director to benefit from being able to seamlessly carry on a business whilst leaving all of the debts such HMRC tax or PAYE debts behind.

However, the legislation was created by the government to try to encourage entrepreneurship, rescue business or lead to better outcomes for creditors, but as with any insolvency process there are often creditors who do not get paid as a result.

How do I do arrange a Pre-Pack Administration?

You need to contact a Licensed Insolvency Practitioner such as Lucas Johnson. We can provide insolvency advice and will tell you if a pre-pack administration is appropriate or if there are more effective solutions for your circumstances.

Contact us today on 0330 900 2000 to receive free confidential advice on your company’s circumstances and find out more about a Pre-pack Administration.

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