Pre pack admin can solve your company financial problems For those with company financial problems, pre pack admin is becoming an increasingly popular rescue solution. It basically involves setting up a new limited company to buy the useful assets of the old. We look at how this solution could help your business.
Pre pack administration (or Phoenixing) is becoming more and more popular as a way of rescuing a failing company. The process involves setting up a new limited company which then buys the assets of the old business.
The assets, employees and even company names are transferred to the new company which starts to trade as normal and the old business is normally then liquidated.
A pre pack administration has significant advantages over other company rescue solutions:
Firstly, historic debt is left with the old business in pre pack. This means that the new pre pack business can start trading without having to pay back the historic debt of the old company. This is in contrast with a company voluntary arrangement. With a pre pack the new business does not have the burden of this debt and can therefore start to trade profitably.
Another advantage is the option to find more suitable premises or renegotiate with the landlord. If the old business was struggling with lease property which was no longer required or unfavourable lease terms, the new company has the opportunity to change these.
It is also of benefit that the pre pack process means that the company's business assets and employees are keep together. If key assets or teams are broken up as is often the case in an administration process, a business is not able to continue successfully even if it no longer has to contend with its debt.
Despite these advantages, there are of course a number of things that need to be considered very carefully before the decision to undertake pre pack administration is taken.
Up front investment is required for pre pack
A lump sum of money will be required with which to buy the assets of the old business. The amount will depend on the valuation of the assets including work in progress and goodwill. However as an absolutely minimum, the value will normally need to be GBP15,000.
In addition to the sum required to buy the old business assets, when considering their budgets, the new business owners and directors will also have to factor in working capital for the new business.
Some believe that pre pack can be used to reorganise staff getting rid of any not required. However this is absolutely not the case. European law (TUPE) requires all employees to be transferred to the new company when another company buys it, and under the same terms and conditions. If some employees are not required then the new company will have to make them redundant taking into account all of their employment rights or face claims for unfair dismissal.
In many instances, pre pack administration is a very good way of saving a business as historic debt is written off and unfavourable lease agreements can be re-negotiated. However, to work successfully, a pre pack will normally require significant upfront investment and will need to take account of employment law. As such, expert advice must be sought before deciding to proceed with a pre pack solution.
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.
