Problems of a Pre-Pack
A pre-pack can be perceived as a way for a company to forego any requirement to pay its creditors and effectively start again. Especially if the purchaser is a new-co formed by the same directors.
This can be compounded if new-co flourishes and administration creditors are left with a liability impacting on their viability.
It is important to seek professional advice at the earliest opportunity to ensure any pre-pack process can be conducted efficiently and within regulatory guidelines.
The guidelines require transparency be displayed to creditors, highlighting not only the financial position of the company pre sale, but also the benefits resulting from the pre-pack sale.
This can go some way towards assuring creditors that the proper procedure was undertaken in the interest of creditors.
A positive pre-pack approach
- A pre-pack sale can ensure continuity of contracts ensuring suppliers and customers are retained and serviced going forward.
- There can be a seamless transfer to the purchaser.
- Some or all of the goodwill associated with the business can be saved.
- Staff retention in part or in whole often occurs with a transfer to the purchaser under TUPE regulations.
- Asset realisation are maximised ensuring, in some instances, that a return can be made to unsecured creditors when the terms of the administration have been met. There would then follow an exit from the administration, either into a CVA or liquidation.