Pre-Pack Administration

If your business has a structure that works but is faced with mounting debts, then pre-pack administration may give you an option to keep it alive.

A pre-pack administration is the sale of a company’s existing assets from the failing business into a new business.

It is the formal insolvency process that allows for the purchase of an insolvent company’s assets.

Future Strategy can help you understand if this would be an option for your business if it is struggling. We can help:

• Preserve asset values, save jobs, and maintain commercial momentum.
• Make sure customer service is not interrupted, and supplier contracts continue.
• Transfer assets to a new company, or ‘newco,’ and trade can continue without the stress of creditor pressure and unmanageable debt.

Businesses need to be valued before a reliable quote can be provided for pre-pack administration.

It is essential if this is a route you are considering, you contact an expert who can advise in insolvency.

Future Strategy can help you appoint a licensed Insolvency Practitioner (IP) as administrator, but this appointment only takes place at a particular stage of proceedings to facilitate a quick sale.

Contact us today for impartial advice on whether pre-pack administration would be an option for your business. We can explain the process while advising on other alternatives as part of a free initial consultation.

Why choose pre-pack administration?

Companies often choose pre-pack to prevent the loss of asset values built up over years of successful trading, such as equipment, stock, property, staff, clients, and contracts. Jobs are also saved due to the speed of the process. 

Essentially, the old limited company will be closed down at the end of the process, and its business assets will be sold.

Though it may seem like the same company is trading (as the staff, suppliers, and customers haven’t changed), you will be trading under an entirely new company with a different name.

When a company enters insolvency, the ensuing publicity can sometimes negatively affect any future hopes of the business. However, with pre-pack administration, reputational damage is minimised. 

The pre-pack administration process is subject to strict legislation. The office-holder must also be able to prove that it offers the best result for creditors. Other criteria include:

• Official insolvency with no hope of recovery: a business is deemed insolvent if it cannot pay its bills as they fall due. This is typically demonstrated by the inability to pay statutory demands regarding debts of £750 or more. Insolvency is also evident if a company’s total liabilities, including contingent liabilities, exceed the value of its assets.
• Any assets must be sold at fair market value: existing directors can buy these assets using their own funds, providing they are sold at fair market value. This also helps to address any ethical concerns that commonly arise.

The process can make it appear that directors of the failed company have simply purchased their business assets and moved on to a new enterprise without dealing with the debt. But the administrator has a legal duty to the creditors and will demonstrate that Pre Pack offers the best returns for the company’s creditors.

Transfer of Undertakings (Protection of Employment) (TUPE) and pre-pack administration

The Transfer of Undertakings (Protection of Employment) regulations (TUPE) is designed to protect employee contracts while transferring to a new company.

Directors acting under this legislation are subject to strict requirements, both as an employer of the old and the new company.

Though jobs are often preserved with a pre-pack administration some redundancies may be necessary. How you deal with these is crucial, and you must ensure you comply with TUPE regulations to avoid any claims of unfair dismissal.

We can help you deal with issues involving employees and the handover from one company to another.

If you need help understanding whether a pre-pack administration could be the solution to your insolvency problems, get in touch with our team today and we can fully explain the options.