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Pre-pack administration

If your company is insolvent, but the underlying business is fundamentally sound, a pre-pack administration could be the solution to your problems.

The outcome of the usual administration process is often the sale of the business, either as a whole or in parts. The difference in a pre-pack is that a buyer is lined up before the administration begins, allowing the entire process to happen very quickly.

Often the buyer of the business includes some or all of the directors of the previous company. That’s because a pre-pack is a useful method of restructuring business finances, including a clean break from burdensome liabilities.

However, you must take care to avoid the appearance of the pre-pack simply being used to escape from debts and other responsibilities. Handled badly, a pre-pack can generate negative publicity.

A pre-pack administration could be the your solution under certain circumstances

Your firm may have found itself facing insolvency despite the underlying business being profitable. This can happen for a number of reasons, such as the catastrophic loss of premises, stock, key staff or a major customer or contract.

Whatever the cause, your business cannot generate the cash flow needed to survive in its current form. To return to success, it needs to be restructured and given a fresh start.

That’s what a pre-pack administration allows. It provides the chance for a new beginning without all the baggage of debt and onerous financial commitments entered into when circumstances were difference. It is also an opportunity to attract new investors, willing to put money into a ‘new’ business with a good track record.

The process of a pre-pack administration

As soon as you are concerned that your company may be insolvent, you should call in an insolvency practitioner. They will review your situation and advise on the various options available. One of these could be a pre-pack administration.

A pre-pack requires a buyer for the business to be in place before the company is placed into administration. This buyer can include some or all of the directors of the current company, but it could be someone who is not involved in the existing business.

The assets of the business will need to be valued independently, as it’s important for the interests of the creditors to be protected.

The purchasers need to ensure they have the capital in place to purchase the assets and to fund the cash flow of the new company.

Once a purchase has been agreed, the company is placed into administration. The business is sold as agreed and operations can continue almost seamlessly.

Funding a pre-pack administration

A pre-pack allows a viable business to survive insolvency, but it does require a fresh injection of working capital.

This can come from a variety of sources, including external investment, long-term borrowing or short-term measures, such as invoice finance.

If you’re considering a pre-pack solution, talk to the commercial finance experts at Business Recovery. Our team has helped hundreds of firms to find the right finance for their needs, through our network of funders.

Our service, which includes helping you to find both short-term and long-term working capital solutions, costs you nothing.

To find out more about how Business Recovery could help your firm raise the extra working capital that it needs, give us a call now.