The quick answer
A pre-pack administration is beneficial when you have an insolvent business worth saving and know a potential business buyer. This buyer may be the existing shareholders and management or alternatively you may know another possible buyer or feel that advertising would help find a buyer in a short period of time.
In more detail
A pre-pack administration is a fast and usually confidential way of rescuing a business that is in financial distress or insolvent. The controversy is that creditors only find out after the sale of the business has taken place so can feel aggrieved that they are not going to be paid back their debt, plus the business has been sold outside of their control or input. Consequently, it is important to follow the legal rules and be respectful to creditors.
A pre-pack administration is a very useful way of quickly rescuing a business within a limited company or partnership.
It means that a new business is created, which usually has a clean credit rating and is not insolvent.
A business is valued and sold in a pre-pack administration at market value or beyond that if someone is willing to pay it. The purchase can be spread over a period of time by instalments in certain circumstances.
Some banks and factoring companies will help support a pre-pack whilst others may not.
Careful thought and advice needs to be taken to make sure a pre-pack is the right route for you and that liquidation, where you can buy the assets and start again, is not better. You should also consider whether a company voluntary arrangement is not the better option.
Examples OF Pre-Packs We Have Done
- A chain of bed and sofa retailers keeping just the profitable shops going forward in Poole, Dorset.
- An engineering firm in Bristol that was profitable but had lost money on a one off contract in the past.
- An insolvent solicitor in Devon keeping his law firm in tact before the Law Society intervened.
- A specialist toy retailer selling his business seamlessly to a new owner in Torquay