When a well-known business faces financial instability, it may be that a part of the business is still in some way profitable and therefore worth saving.
If facing continual demand from creditors that they owe money to, and threatened with liquidation or bailiff removals, it may be that the directors require time to stabilise the finances and have an attempt at rescuing the profitable part of the business, whilst saving jobs in the process. An Administration will allow for this opportunity.
An Administration involves securing a Court order to protect the business and appointing a licensed insolvency practitioner to supervise the business while this process is ongoing. A pre-pack Administration refers to when the business is sold immediately. In most cases, a deal has already been agreed with a buyer to take over at the date of Administration
, and this allows for the rescue of part, or all of the business, and many jobs in the process.
Licensed insolvency practitioners are required to follow strict rules when adhering to pre-pack Administration. These include securing an agent to value the assets; marketing the business for sale beforehand, and speaking to the major creditors before the sale happens.
Pre-pack Administration is a good way of saving a business that has high value in goodwill or is mostly dependent on the knowledge of its workforce. The longer a company is in a state of financial instability, the more the employees and the customers of the business are likely to look elsewhere.
If you have a question about an insolvency matter, please do give me a call for a free initial discussion.