Avoid Bankruptcy With Pre Pack Administration
Insolvent companies who sell their assets to a third party as soon as they go into administration, are said to be the subject of a Pre Pack Administration. This process tries to ensure the business can continue to operate under the new management, and the money raised from the sale of the assets can be used to settle as much of the previous company’s outstanding debts as possible.
To enable a company to get into a position where it can continue trading, Pre Pack Administrations are sometimes used to help the current management buy the assets of the business, in order to set up a new company that is financially stronger. Pre Pack Administration can also be used to get the best price for a company’s assets before the publicity of formal insolvency proceedings has a negative impact on their value.
The main benefit to companies of a Pre Pack Administration is that they are able to continue trading, while having obtained the best possible value for their assets to clear the outstanding debts that meant their business was no longer solvent. In the majority of cases, the employees of the company will keep their job, and carry on working for what is effectively the same business, all be it under different management.
Pre Pack Administration have come in for criticism from some parties, particularly those that are owed money by business that go through the process. They claim that creditors have little or no say in what is agreed as part of a Pre Pack Administration, and it is simply a way for businesses to wipe out all of their debts and continue trading, with the creditors being the ones who lose out. Any deal that is done as part of a Pre Pack Administration leaves creditors with no other choice than to accept the outcome and what it means for them.
Those in favour of Pre Pack Administrations would argue that the involvement of Insolvency Practitioners in the process ensures that this is a legitimate way of achieving the best possible outcome for all parties. Not having to go through the the formal insolvency process means creditors receive as much of what they are owed as can be repaid, and the business can keep trading so as few people as possible lose their jobs.
The Pre Pack Administration process has always been an option for insolvent businesses, but it has received much more attention recently, simply due to the larger number of failing business who seek to benefit from it. If your business is in trouble, and you feel a Pre Pack Administration may be the solution, make sure you get professional advice as soon as possible.
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