How The Pre Pack Administration Process Works

When faced with business bankruptcy, an option available to a company is pre pack administration

. It permits a business to continue with minimal interruption, while at the same time allowing insolvency issues to be resolved. The clear benefits that this approach offers has seen it become a very popular way for troubled businesses to deal with their debt problems.

So, what exactly is pre pack administration? Put simply, it involves selling an insolvent business prior to it being entered in to administration. The buyers of the insolvent company are normally the directors of the actual company that is being sold. They can do this because they are not actually buying their old company as such, because it will be a new legal entity by the time that the sale goes through.

Creditors do not have to be consulted before a pre pack administration is initiated. When a business enters administration, a company voluntary arrangement or a liquidation process, creditors must be informed and they can vote to reject proposals, which they cannot do with pre pack administration. However, this does not mean that the company can act without any regard to their creditors.

Once the precise details of the sale have been decided upon, the insolvent company is then entered in to administration. Arranging the sale of the business beforehand means that the company is actually only in administration for a very short period of time, as the administrators can authorize the sale almost immediately. As this process is a particularly sensitive one, and one which will affect, potentially, many other parties, everything must be done transparently and be fully documented. Failure to do so could lead to repercussions later on.

There is a common perception that pre pack administration allows directors to continue to run a business without being held accountable for debts that they were responsible for. They can pretty much continue as they were before, whilst their creditors are left to pick up the tab.

That is a simplistic view though, and a framework is in place to ensure that the system of pre pack administration is not abused. Directors not placing the interests of the company above their own are taking a real risk. If creditors, on finding out about the pre pack administration taking place, feel that the directors acted with only their personal interests in mind, then they can take legal action against them..

If you think that pre pack administration is in the best interests of your business, then you should contact a company who specialize in processing them. It is not really something that you can process on your own. If you try to do so, you will probably breach one of the many strict rules and regulations, which could see you being taken to court by your creditors.

by: Mark Walters

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