A Pre-Pack Administration is where the buyer of the business has been agreed before the date of the Administration order. On the date of Administration the business is sold and then the majority of the creditors, shareholders and employees are notified after the event. Pre-packs were designed to preserve the value of the business by allowing a very quick sale. The sale must be at a fair market value and is often to the existing directors, lenders or shareholders.
When should a pre-pack be considered?
A pre-pack is a very useful way to rescue a business that has a high value of goodwill that would lose value over a short period of time.
A good example of a business that is suitable for a pre-pack is one that relies on employees who have a detailed knowledge of the business and clients and customers who would leave if there was uncertainty. The overall objective of a pre-pack is to give a better return to creditors than in liquidation.
Pre-pack administrations are very quick to implement which can help stop clients or customers leaving. It also makes the change in ownership as seamless as possible. From the first meeting to the completed sale a pre-pack administration can take just two weeks to complete.
In a pre-pack the business is usually valued by an agent who has experience of valuing businesses and the business must also be advertised for sale even if this is for a limited time.
When entering a pre-pack you will need to choose a suitably qualified and experienced licensed insolvency practitioner. Your accountant or solicitor should be able to recommend one if you're unsure. The licensed insolvency practitioner, who is the proposed administrator, will help you through the process. In summary the administrator will:
This whole process can take from two week upwards.
Have all of your financial information together and make sure that you tell the insolvency practitioner of any impending winding up petitions and county court judgements so that they can deal with them directly.
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