Pre-Pack choices – practical ways to help your business survive Covid -19

PRE PACK SOLUTIONS

In light of the Covid-19 pandemic, and the national lockdown imposed by the Government, many companies are facing financial hardship and may not be able to generate adequate future revenues to honour their existing debt obligations.

Inability to repay debts, as and when they fall due, can trigger insolvency proceedings which could lead to the premature liquidation of an otherwise viable business.

There are essentially two types of pre-packaged insolvency process which enable viable businesses to survive insolvency, namely administration and liquidation; both procedures ensure a sale can be done quickly thus reducing the likelihood of losing key employees and contracts and preserving the value of the business.

Pre-pack administration

Pre-pack administration is where a company agrees a sale of all or part of its business and assets before appointing administrators to conclude the sale.

The business and assets are usually sold to a third party but can alternatively be sold to the existing directors, operating under a new company, providing they have funding in place to acquire them at fair value.

It is most suited to larger companies since it is a costly procedure and complex compared to liquidation.  Pre-pack administration works best where there is a fundamentally good business that cannot continue in its current form due to, for example, the threat of a winding up petition by a company creditor – but someone (either a third party or the existing directors) is prepared to fund ongoing trade via a new company.

 

Pre-Pack Liquidation

Pre-pack liquidation is an informal term used to describe a process where the sale of the business and assets is negotiated prior to the company entering liquidation and works in a similar way to pre-pack administration.

Often the existing owners of a company are best placed to purchase the business from a liquidator to ensure realisations for the benefit of creditors.  The liquidator will rely upon an independent valuation of the business and will complete a sale once appointed.  The owners of the new business are then able to continue to trade the new company debt free.

Prepack liquidation is best suited to small to medium sized enterprises (SME’s) as it is a less expensive, and if done correctly still allows the usual protections, whilst also avoiding the cost of a TUPE transfer.

 

If your company is experiencing financial problems, as a result of the Covid-19, please get in touch to discuss your current situation and the options available. Our skilled and experienced team of Insolvency Practitioners will help you find a solution.

Please call us now on 0330 159 8080 for a FREE initial consultation.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *