When a business has entered insolvency (a financial situation when a company is unable to pay its debts), pre-pack administration will play a key part in its closure. It enables a business that is struggling financially and has entered administration to sell all their assets in a timely and efficient manner. Being able to understand pre-pack administration offers several positives, let’s explore this further.
As a formal insolvency process, pre-pack administration enables the sale of the business and all its assets before an administrator is appointed. Once a deal is agreed the company can then enter administration and the sale can be completed. This process can help rescue a business which is in financial distress by preserving its value, existing jobs and operations.
Some of the key features of pre-pack administration are:
- A pre-arranged sale of the business is arranged.
- The business can continue to operate, saving jobs and business relationships.
- A licenced insolvency practitioner is appointed and will oversee the process to ensure it is conducted in the best interest of creditors.
- A quick sale can be initiated which will limit financial impact, help to save jobs and retain the value of the business.
- All pre-pack administration is governed by the Insolvency Act 1986 helping to balance business rescue with creditor protection.
One of the major benefits for pre-pack administration is its ability to provide a swift resolution whilst offering the very best outcome for all involved.
To complete a successful process there are several steps that need to be followed:
- Data collection – all directors need to work closely with the insolvency practitioner for the preparation of accurate information. An accurate valuation will need to be compiled, potential buyers will need to be sourced and advice from both legal and financial specialists will be required. This will enable a sales plan to be developed and executed.
- Execution of sale – as soon as the data collection is completed and approved the company can be placed into administration and the sale of the business initiated. At this point full transparency needs to be maintained. Full documentation will be prepared which validates the sale and protects all the parties involved.
- Post sale actions – upon completion of the sale all creditors need to be informed and advise when their claims will be settled. Employees will need to be informed and advised on any changes to their roles or job security. Finally, all regulatory actions (such as updating company records) need to be completed to ensure no legal issues arise.
To summarise pre-pack administration can be a very valuable process and strategic solution for selling a business, preserving its value and maintaining positive relationships with all creditors.
If you would like some advice on pre-pack administration, please call our team on 01173 700 079 or e-mail hello@steppingstonesaccountancy.co.uk.
You can also book a free 20-minute call with Yarka – https://calendly.com/yarka-ssa/20min