Pre Pack Administration
Pre pack administration, put simply, is the sale of an insolvent business as it enters administration. The buyers of the insolvent company are normally the directors of the actual company that is being sold. The legal entity will likely be changed, but associated 3rd parties (such as suppliers and customers) will not notice any real differences in their interactions with the business. 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. The company still has to act in a responsible manner though, and not ignore the rights that their creditors have. They must keep detailed records of the proceedings as at a later date they may have to give an explanation as to why pre pack administration was the right solution. Under pre pack administration, the exact details of the sale of the business must be decided upon prior to the business actually being placed in to administration. The administrators are able to conduct the sale of the business almost immediately. Due to the nature of the transaction, and the effect that it will have on the unsecured creditors, it is important that each and every step of this process is fully documented. Some people do not agree with pre pack administration on the basis that it appears to allow directors who ran a business irresponsibly to escape being held accountable. Essentially, it looks like directors are cheating their creditors out of money owed to them, whilst they continue to do business as before. However, a rigid framework is in place to stop people abusing the pre pack administration mechanism and it would not have received government backing if it were a fraudulent way of dealing with insolvency. Directors not placing the interests of the company above their own are taking a real risk. Directors found to be abusing the system can be taken to for their actions. 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.
Find Out More – Business Bankruptcy
Filed under Blog by 
