When our business starts to go through a time of serious financial difficulty, we’re often suddenly exposed to a whole new world of concepts and phrases. From insolvency to IPs, it can be frustrating and confusing trying to navigate these terms, especially when the stakes are so high.
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One of the terms you’ve possibly come across is pre-pack administration. If you’re not quite sure what it means, but believe it could be relevant to your current situation, then read on to find out a little more.
On this post, let's take a closer look at pre-pack administration and how it can be helpful for you.
Pre-pack Administration Defined
In simple terms, pre-pack administration is a subcategory of the overall process of administration. What makes it different from ‘normal’ administration processes is that the sale of the business will normally have already been confirmed prior to the appointment of the administrator.
In many other areas, pre-pack and normal administration processes are quite similar. They’re both dealt with using the same general set of best practice requirements, and both involve the appointment of an administrator.
Identifying whether this is the right path for your business or not will typically require seeking specialist advice from a company such as Chamberlain & Co.
Why use a pre-pack administration?
One of the main advantages of buying or selling a business through pre-pack administration is the limited effect it will have on the operation of the business.
This is generally beneficial for all parties; it increases the probability that employees will be able to hold on to their jobs, while also maintaining as much value of the original business as possible.
As such, it’s generally always a better alternative than receivership or liquidation. That doesn’t just mean that the different processes are interchangeable though; certain facts must be clearly stated before the business is able to enter into pre-pack administration.
Who might use a pre-pack administration?
While pre-pack administration can be a great solution in certain situations, the company must meet certain criteria. In short, the company will likely need to be insolvent, but it must also clearly be in the best interest of the creditors to try to save the company, rather than simply sell off the assets and distribute them accordingly.
This will mean establishing that there is a reasonable chance of success when it comes to saving the business, which will not be possible in all situations. Where it is not possible, it might be better to explore options such as a Creditors’ Voluntary Liquidation or a Company Voluntary Arrangement.
Which option you choose to take your business through these difficult times can have a big impact going forward. Not only is it practically important to make the right decision, but you also have certain legal duties to do so.
It’s crucial that you get advice from an insolvency practitioner with experience in this area, so that you can be sure you’re operating based on access to all the relevant information. Make sure that you choose your insolvency advisors wisely; a little extra work now could save you a lot of bother further down the line.
