Your business can keep trading as a “newco”
One of the most significant advantages of pre-pack administration is that it allows a business to continue. Although your company won’t exist in the same form as it did before, its assets can be sold to a new company.
This company is referred to as a “newco”, and it give an insolvent business a chance to keep trading with its customers and clients. The newco can take on the contracts that were being fulfilled at the old company, preserving customer relationships.
With a pre-pack administration sale, your business can continue without having to rebuild relationships or create them from scratch. Continuity is provided for your business, easing the transition from one company to another.
This isn’t just an advantage for your business – it’s also a significant advantage for its customers and clients, since there’s no need for them to develop relationships with other businesses to provide certain products and services.
One of the biggest problems many directors face after their company enters into liquidation is getting started again. Pre-pack administration prevents the need to stat from scratch by allowing your business to continue as a different company.
Creditors receive prompt payment for company assets
Insolvency isn’t just challenging for your business – it’s also a difficult process for its creditors. When a company enters into administration, it can often take months for its creditors to receive any type of payment, if they receive anything at all.
When a company enters into a CVA, creditors may also only receive a fraction of the total amount they’re owed, often in the form of a monthly payment over a very long period of time.
Pre-pack administration allows your business to free up cash and pay its creditors relatively quickly. This is because a pre-packaged asset sale can take place as soon as the company enters into administration, not after a lengthy delay.
Since the process of selling assets is quick and straightforward, your company can pay creditors and settle its debts – either in part, or in full – far quicker than other insolvency procedures would typically allow.
It can also avoid the often unpleasant compulsory liquidation process, which tends to seriously damage creditor-debtor relations. With a successful pre-pack deal, the relationship between your company and its creditors can often be protected.
Pre-pack administration is cheaper than company administration
Entering a company into administration is a slow process that can sometimes take over 12 months to complete. The more complicated your company’s financial issues are, the longer it usually takes to exit administration.
Throughout administration, your company needs to pay for the services of a third party administrator. If a team of insolvency practitioners is required, the cost of a company administration can quickly increase as time goes by.
This can result in your creditors receiving significantly less than they could have through liquidation, particularly if the administration takes a long time and ends with the company entering administration voluntarily.
Pre-pack administration is a far quicker process that usually involves the sale of company assets as soon as it enters administration. Since the process is simpler, your company will end up spending far less to sell assets in a pre-pack sale.
This means more money will become available for your creditors, ensuring they receive the best outcome of all the options – from a CVA to administration – that your business has available.
You can make sure key employees don’t lost their jobs
One of the benefits of pre-pack administration is that it doesn’t just let your business continue trading – it also provides important legal protection for its employees by letting them keep their careers.
The alternatives to pre-pack administration, particularly liquidation, leave only a limited range of options for employees. In many cases, employees could lose their jobs due to the closure and liquidation of the company.
For businesses that aren’t financially viable enough to enter into a CVA, pre-pack administration is a safe solution that makes retaining staff and continuing trading far easier.
This also benefits your business’s suppliers, as there’s no risk of the failure of your old company affecting them. In a company liquidation, the loss of a major customer can often put your company’s suppliers in a challenging financial position.
Pre Pack Administration is strictly regulated under the TUPE regulations, making it important that your business follows the rules when transferring staff from the old company to the newco.
Your business can renegotiate or end certain contracts
When your business is transferred from the old company to the newco, you may be able to end certain contracts. Contracts for office or retail space, for example, might not be required by the new company and act as needless costs.
Some of the contracts your company may be able to close in a pre-pack sale include property leases, service contracts with other companies, vehicle hire contracts and other contracts that aren’t necessary for your new company.
Legally, your company can end many of these contracts in order to reduce costs for the new company. This makes running your business less financially taxing in the future and removes unnecessary financial burdens from the new company.
Is pre-pack administration the best choice for your company?
Is your company insolvent and in need of help? If you’re interested in continuing to run your business as a new company but need help dealing with ongoing financial problems, pre-pack administration could be the best solution available.
From protecting jobs to giving your business the chance to keep trading without any financially taxing contracts to worry about, pre-pack administration offers several advantages that make it a good choice for many insolvent companies.