A Pre-pack Administration is a relatively new but widely popular insolvency procedure that is taking the business world by storm. It legally permits a viable but insolvent entity to be sold to in order for it to continue operations and trade under a new name and management without the burden of its debts. The reason why many entities opt for it over liquidation and any other business recovery options is due to the following set of benefits.
• It strengthens business continuity. Having the company sold to existing directors, a trade buyer or third party who are all individuals familiar of the business and how it runs allows “going concern” to be fortified. In the first place, the entity is sold and continues to operate instead of closed down and liquidated. Furthermore, the company gets to reestablish itself and hopefully carry on and recover from its slip.
• It preserves jobs and the economy. Since business continuity is fortified, people get to hold onto their jobs instead of losing them. Even if a restructuring happens and layoff of redundant positions may be necessary, employment is still preserved by a large degree instead of let go all at once. Moreover, a bankrupt and defunct business hits the economy hard.
• Suppliers and creditors favor it. With a better cash flow from the new company, suppliers can retain their ties with the entity and continue doing business with it. Furthermore, creditors are likely to get a better return of their investments with a pre-pack administration in contrast to a winding up petition at court. If the new company does great, both suppliers and creditors will get their shares in full instead of in partiality or none at all.
• Branding and image is preserved. A company that closes down due to financial distress looks bad in the eyes of investors, creditors and even the general public. Having a pre-pack administration is not all polished in itself but is more favorable to the majority as it appears more like restructuring and improving the business.
• Voluntary and forced liquidations are avoided. As mentioned earlier, a pre-pack administration legally permits a viable but insolvent entity to be sold to in order for it to continue operations and trade under a new name and management without the burden of its debts. That being said, both a Creditors Voluntary Liquidation and a Winding Up Petition are avoided by the entity.
Learn more about pre pack administration here at AABRS.