A guide to the pre pack administration process
When a company faces financial distress and becomes insolvent, it’s crucial to consider the various processes available to either revive the business or sell it to settle debts and dissolve the business. One such significant process, if full revival isn’t the route possible, is the pre pack administration process.
Understanding what the pre pack administration process is can help business owners make more informed decisions about their company if it is insolvent. Here, the team at Bridge Newland takes a closer look at what the pre pack administration process involves.
What is the pre pack administration process?
The pre pack administration process is one of the most common insolvency processes. It is a process used by insolvent businesses where they place their Company into administration by a court order but instead of closure, the good parts are the business are sold in a packaged sale.
With the assistance of an Administrator who oversees the process and manages its affairs, the company can arrange to sell the whole business, or just its assets, to a buyer where typically the deal is set to complete immediately after the Administrator is appointed.
The pre pack administration process facilitates the quick and seamless sale of a business, often helping to save jobs and retain the value of the company. The pre pack administration process can also be a good option for businesses threatened with a winding up petition.
The Administrator deals with any debts or liabilities of the insolvent company, and any assets not included in the pre-pack sale can be sold separately to raise further funds for the creditors. Once all affairs have been resolved, the insolvent business will usually come out of Administration and into Liquidation to allow the Liquidator to distribute the realisations to creditors, before the Company is then later dissolved.
The steps of the pre pack administration process:
- A company becomes insolvent and is at risk of being wound up. Directors and shareholders discuss the potential options available to them with an insolvency practitioner, such as the experts at Bridge Newland
- The insolvency practitioner then aids the company with obtaining a valuation of the insolvent company’s assets, and considers its liabilities
- The Administrator will help prepare the Director’s Statement of Affairs
- If the assets are being sold to an existing company, then the insolvency practitioner will ensure that the company has the necessary funds to buy all assets
- If the assets are being transferred to a new company, all financial forecasts should be provided to ensure they are a viable purchaser
- Before an Administrator is appointed, a sale price and terms are all agreed, and a sale agreement is drafted. The sale price must be approved by an independent valuer and it is also recommended that the Directors obtain consent from the pre-pack pool who are a group of experience business people that legislation recommends approval to ny pre-pack sales be received from.
- The administration documents are then filed at Companies House which, in turn, will place a temporary stop on any legal actions that may have been commenced against the company or are pending
- Once the administration is confirmed at Companies House and court, the agreed pre packaged sale is then completed immediately and dated and timed for when the administration started
- The Administrator then writes to all creditors of the insolvent company and takes control of any assets not included in the sale
- The purchaser takes over trading from completion without taking on any of the insolvent company’s debt.
Advantages of the pre pack administration process
- The pre pack administration process is known for its speed, often completing quickly. This efficiency helps to preserve the value of the company and prevent further losses, providing reassurance to the directors and shareholders
- During the pre pack administration process, the business can continue to operate with little disruption. This continuity ensures that staff keep their jobs and customers are unaffected, providing a sense of stability to all involved
- This process can help maximise the value of the assets
- It can help the directors of the insolvent company to sell assets in controlled conditions
- It helps retain confidentiality, meaning that the company’s reputation and customer relationships are not impacted.
- As it is a court driven process, the filing of administration paperwork at court puts a stop to legal action commenced against the insolvent company where other processes would not stop these legal actions.
Disadvantages of the pre pack administration process
- Creditors might feel that the pre pack administration process didn’t give them a say in the sale of the assets
- Often, the pre pack administration process involves selling the company back to the same directors and shareholders, which means there’s a risk that the purchaser might become insolvent again
- The purchaser might end up taking on a considerable amount of employee liabilities as a result of their employment being automatically transferred under TUPE regulations.
- Due to the over regulation of the pre-pack process, the fees and costs can be a little higher that other insolvency processes.
Why choose Bridge Newland?
As a family-owned and fully licensed team of insolvency practitioners, Bridge Newland is committed to upholding the highest professional standards. Our team, comprised of highly skilled and experienced professionals, operates in strict accordance with the latest insolvency legislation and best practices. We are dedicated to providing you with insolvency advice you can trust.
Our experienced team of insolvency practitioners can advise you at every stage of your journey. From debt advice to company liquidation and administration to CVAs, we can guide you with cost-effective insolvency advice and support to help resolve your financial difficulties.
Speak to our expert insolvency practitioners today for a free initial and confidential consultation.
Categorised in: Administration News
