Business Turnaround - the right time to use Pre Pack Administration Pre Pack Administration (Phoenixing) is one of the Business Rescue solutions available to companies in financial trouble. However one solution is not always the right fit for every situation. We look at what pointers would indicate this is the right solution for you.
If your company is in financial difficulty it may be possible to avoid liquidation and rescue the business by setting up a new phoenix company which trades in place of the old without the burden of debt.
Pre-pack administration (often known as Phoenixing) allows a new limited company to be set up which purchases the assets of the old business. The new company is then free to trade in place of the old without having to repay the old company's debt.
A number of people criticise Phoenixing as being a dubious ploy to dodge your debts. However, where a business is failing, creditors are unlikely to ever recover much of the debt owed. A phoenix operation gives an opportunity for ongoing trade with suppliers and customers, and the retention of employees whom would otherwise face redundancy.
In many circumstances, the phoenix process should be considered as a very real option for business rescue.
Does the business have a real future?
The directors of the company must believe that without the debt which is current dragging the business down, there is a very real prospect that a new company can survive and grow. Investment will be required as the new phoenix company must be funded to allow it to purchase the assets of the old business.
Where funds are available which would otherwise be used to repay debt rather than build the strength of the business for the future, phoenixing may be appropriate.
Current premises are no longer appropriate
As phoenixing involves starting a new company, this company will not be bound to the existing leases or HP agreements of the old company This means that leases or equipment which are no longer required can be left behind.
Of course where the new company wishes to remain in the premises of the old, then new terms may be negotiated with a landlord. However the outcome of such negotiations will largely depend on the availability of alternative accommodation and the ease of which the business can be moved into different premises.
There are some circumstances when phoenixing may not be appropriate:
Some employees are no longer required
If you believe that you have overcapacity of employment or are employing the wrong type of staff, it is important to understand that pre-pack administration will not automatically enable you to remove staff from the business.
European employment law (TUPE) makes it clear that employees move to the new company with the same terms of employment and continuity of service if a business purchases another. As such, if any employees are unfairly treated as a result of the phoenix process, they may have ground to claim against the new business for unfair dismissal.
I have a winding up petition
If you already have a winding up petition, then unfortunately you will not be able to use a pre-pack administration process. This is because once a winding up has begun, none of the company's assets can be sold before a liquidator is appointed at a creditor's meeting.
If you believe that your business is failing, pre-pack administration is an excellent solution which you should consider to help you turn the company around. However, you must act as soon as possible and get appropriate specialist advice. The more time that passes, the more likely that the company's creditors will start to take action. If this happens, particularly in the case of winding up proceedings, your options will certainly be diminished, although there are still other solutions that may be usable.
What happens to the directors if a company is wound up?
Once a company is being wound up a Liquidator will be appointed. The liquidator will undertake an investigation into the conduct of the directors to see whether they have knowingly allowed the business to trade while insolvent thus making the creditor's position worse. If this is the case, a director may face being disqualified and held personally liable for the company's debts. As a Director we look at the options you have.
What will having a County Court Judgement do to my company
If a county court judgement remains unpaid, this could lead to more serious action being taken against the business. We look at the impact and what you can do.
Company debt restructure to improve cash flow
Ensuring that enough cash is available to maintain their business must be a priority for companies. Those that do it well will survive. Those that do not are likely to fall. As such identifying problems and implement solutions which may require a radical restructuring of debt must be a priority. We discuss some of the solutions available.
