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What is Pre-Pack Administration?

Posted on by Recovery & Turnaround

Following on from last month’s discussion of what exactly constitutes the administration process, we move on to talk about pre-pack administration. Pre-pack administration is an effective way of selling a company to either:

  • a trade buyer
  • a third party
  • the existing directors operating within a new company if the existing business is   experiencing issues and creditor threats

If a company is at risk of facing a winding up petition – a malicious petition issued by creditors – the pre-pack administration provides a better return for secured and unsecured creditors in many instances whilst protecting the assets of the company under what is known as a moratorium.

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Benefits

Pre-pack administration has a whole host of advantages, the primary advantage being the continuity that the business can experience as there are no breaks in the progression of the company. This way, the Court protect the company, which in turn permits the administrator to seek to sell the business as a going concern. By doing so, any debts and unwanted contracts the company has agreed to are eliminated without interruption to business – jobs are saved, and the company is given a fresh start.

Another benefit is that this process is cheaper than trading administration, since no funding has to be found by the administrators in order to carry out the trading process. As well as the lower costs comes the shorter timeframe this process requires, with all work from preliminary marketing and discussions with creditors right the way through to completion able to be carried out in the matter of just a few days.

Disadvantages

There are, of course, drawbacks to this procedure. Pre-pack administration can create negative publicity if people take the view that former directors are casting off liabilities. This, though seemingly unfair since the company was already insolvent, is something that can arise.

Following consultation by the UK government about the process regarding its drawbacks, it was decided that pre-pack administration need not be reformed and, rather, should be kept as it is. Since the process requires a strict code of practice from practitioners – a practice that has been made even more rigid in recent times – the procedure is deemed to be effective, overall.

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Here at Recovery and Turnaround, we are proud to provide expert pre-pack administration services to those customers faced with insolvency. Helping make your business as valuable as possible with a view to a sale, our team of highly-trained professionals are on hand to help, so don’t hesitate to get in touch with us today.

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