The administration process is designed to protect a company from creditor pressure, in order for a licensed insolvency practitioner to consider whether it is possible to achieve a better return for creditors than would be likely if the company were to be wound up.
The primary goal is to rescue a viable business that is insolvent due to cash flow problems.
This can often be a tricky assignment. Customer confidence can be lost if their supplier is known to be insolvent.
The situation can quickly escalate with key employees and contracts being lost. The end result can be a significant reduction in the value of the business and a poorer return to creditors.
A possible way that the value in the business can be retained is via a pre-pack administration.
This is a process whereby the business is marketed widely for sale prior to entering a formal sale process. The sale would be agreed and the sale completed immediately following the appointment of administrators or as close to the appointment as possible.
The merits of the pre-pack administration process include continuity of trade, reduced costs and a better return to creditors due to the retention of the business’s value.
The downsides of pre-pack administration can be a bad reaction from creditors, who may think the business has been sold at an undervalue and have concerns that the process is not transparent, and problems with funding.
When would a pre-pack administration be appropriate?
A pre-pack administration should be considered where a company has experienced cash flow problems due to a non-recurring event, for example, a large bad debt.
It is also worth considering this process if the company has an underlying viable business that is capable of being sold as a going concern, or it has a potential buyer.
Could this rescue your business?
A pre-pack administration can be a useful tool in effecting a timely sale of a fundamentally viable business.
It is essential to initiate the process quickly. The necessity to keep the sales process transparent is vital.
The use of experienced insolvency practitioners means that the marketing and valuation process conforms to all standards.
If you would like to explore whether a pre-pack administration is appropriate for the sale of your business, please get in touch for more advice and support by calling 01768 222030 or email help@armstrongwatson.co.uk
