Updated: 11th January 2020
Pre pack administration offers the opportunity to start a new limited company without pressure of debt. This is a popular solution for insolvent companies, with specific requirements in place to safeguard creditor interests.
It is incumbent on the Insolvency Practitioner to demonstrate that no better options exist with respect to creditor returns.
Begbies Traynor can advise on whether a pre pack administration is suitable for your business. We offer same day consultations free of charge.
The speed of sale ensures little loss of trade and minimal bad publicity for the new company. Buyers need to prove their ability to purchase the assets, however, and if personal funds are not available, asset-based lending may be an option for directors.
The original company is liquidated, and any remaining debts after monies have been distributed are written off. A legal requirement for Insolvency Practitioners to maximise creditor interests and demonstrate that pre pack administration brought the highest returns addresses any negativity surrounding this option.
It is in suppliers’ interests to continue trading with the new company, although this is likely to be on a pro forma invoice or cash payment basis rather than on credit.
Starting a new company without the stress of debt sounds ideal, but issues such as personal liability should be taken into consideration.
The Insolvency Service investigates the conduct of all directors in the months leading up to insolvency. They will identify the issues that led to this situation, how directors dealt with the problems, and whether wrongful or unlawful trading took place.
If you fear allegations of this type or are not sure whether you have traded wrongfully, we can establish the facts of your situation.With offices the length and breadth of the UK, Begbies Traynor provides guidance on these matters prior to the valuation of assets and marketing of the business.
The ramifications of unfit conduct and unlawful trading are serious. Disqualification as a director for up to 15 years can result, in addition to personal liability for company debts. In the most serious cases a prison sentence may be handed down.
On realisation that your company is insolvent, you must put creditor interests ahead of your own and those of shareholders. This means:
The newly-established business is sometimes referred to as a ‘phoenix’ company, having risen from the ashes of the old one. Public view of this procedure is not always positive, however, which can affect the success of the new business.
Additionally, creditors may feel that their position has not been considered sufficiently, but it is often the case that supplier relationships continue successfully with the new company due to the absence of debt pressures.
If your company has received a 21-day Statutory Demand for Payment, you will need to act quickly. The arrival of a winding-up petition may be imminent, in which case pre pack administration will cease to be an option.
Begbies Traynor is the leading UK insolvency practice, and operates from local offices. Contact a member of our team to arrange your free same day consultation.