Where a business is facing serious financial problems and creditor pressure a Pre-Pack Administration is a legal way of selling a business on to either a third party, a new company, or to the existing director(s).
A Pre-Pack Administration allows the continuity of the business and preserves jobs for both the director(s) and any employees.
Pre-Pack Administration helps to protect the value of the company’s business and/or assets for the creditors, therefore maximising what can be repaid to the company’s creditors. The main way a Pre-Pack Administration achieves this is due to the speed and discretion of the process, as once a company’s financial difficulties are made public its value falls, staff may leave, and customers may stop doing business with them. A Pre-Pack protects the value of the business by achieving a sale before the value is damaged.
Other advantages include; writing off the company debts, releasing business from onerous leases/contacts, and avoids disruption for customers.
Pre-Packs are over quickly, which means the costs are considerably less than other insolvency procedures. An Insolvency Practitioner is bought in by the company director(s) and assist with the valuation of the business and its assets and a sale is lined up. The company then enters Administration and, as previously arranged, the sale goes through. The money raised from the sale is used to repay the insolvent company’s creditors.