Pre Pack administrations are a popular tool used by many businesses. A company that incurs a sudden large debt e.g. an unpaid tax bill, or is not paid by a large customer – therefore causing cash flow problems, can resolve these issues without needing being forced into an specific direction by creditors.
The process involves an Insolvency Practitioner, Accountant or Business Turnaround Expert being appointed by the directors of the company, and taking on the task of selling the companies assets and placing the company into administration. After the appointment of an administrator, the assets, and day-to-day trading of the business can be purchased by a new company, or indeed a competitor, who can continue to trade without the burden of debt incurred by the previous company.
In order for a pre pack administration to run its course, the appointed administrator will liase closely with the secured creditors to ensure they consent to releasing or changing the charges they hold over the companies assets. Unsecured creditors are usually informed of the process once it has taken place.
The advantages of this process is that valuable members of staff can be retained, connections with suppliers can be saved ensuring future supply, and customers can be kept.
Last summer the troubled Wind Hellas moved its registered address from Luxembourg to an address in the City of London. Within weeks it went bust, eventually using pre-pack administration – becoming the biggest ever pre-pack deal.
In a normal insolvency an administrator is appointed to realise as much as possible for creditors either by selling assets or the whole business. In a pre-pack, the resale of the company is agreed in advance of administration. In a matter of days, or even hours, a company can appoint an administrator and be resold. In the process some creditors will lose the money they are owed though in theory it can save a company and jobs that might be destroyed by a prolonged administration.