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Advantages of a pre-pack administration

February 21, 2016 | Financial Saviour

Is your business struggling financially? A pre-pack administration could be the solution you require. There are many advantages to adopting this particular procedure, so we’re going to explore some of them for you right here.

But firstly, what is a pre-pack administration? It is a type of insolvency procedure designed to facilitate the quick sale of a business that is struggling financially, or, in more technical terms, insolvent.

Circumstances of insolvency usually allow an administrator to be appointed to negotiate the sale of business assets in order to re-cooperate as much financial backing as possible. With a pre-pack administration, however, all negotiations concerning the sale of assets takes place before an administrator is appointed, and this leads onto the first advantage:

Speed of sale

This is a huge benefit of a pre-pack administration. Due to negotiations being completed before an administrator arrives on the scene, the sale tends to go through very quickly as a result. In most cases, this means much higher returns for creditors when compared with various other routes into business insolvency.

Speed also has an effect on the costs involved in a pre-pack administration; these are often less than if a standard administration procedure had been used. Reduced costs are also helped through due diligence which is undertaken before any financial problems become apparent.

Trade under a new name

When a business is in insolvency, the assets are available to be purchased by a third party, trade buyer, or even the director of the failed business. The latter is a common outcome and means the director has ownership of the assets of the failed business and can continue trading under a new company name.

This also means that the focus is now firmly on the future of the business – investment is no longer required to settle historic debt, and equipment and property contracts associated with the old business can be terminated, allowing all assets to be freed and used to help build the new business.

Maintaining brand image

When it comes to the various types of insolvency procedures, a pre-pack administration is one that most often avoids the harmful publicity that can arise when such a situation becomes knowledge in the public domain.

If there remains positive perception of the business brand image, there is good scope for the long-term growth of the new business as jobs may be saved and there is a much better chance of suppliers being paid on time.

Maintaining control

Another way in which pre-pack administrations differ from that of other types of insolvency procedures is that they allow directors to keep at least some control over the business, meaning that chances of success are increased.

It is of course not only beneficial if the company is sold to someone with knowledge of how the business is run, but also that lessons will have been learned from areas when the business previously failed, and acting on these is sure to help the business going forward.

Transparency is key when it comes to pre-pack administrations and this is why it’s always important to seek professional advice from experienced insolvency practitioners like those at Financial Saviour. Get in touch today for a full review of your situation.

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