When a business goes into administration, and it assets are immediately sold to another party, the term used to describe the process is Pre Pack Administration. Pre Pack Administration is designed to allow businesses to continue trading, under new management, after having achieved as much as possible for the former company’s assets, to eliminate the amount of debt that was owed.

Companies and their advisors may decide to opt for a Pre Pack Administration if it is unlikely that the business will be able to trade through the administration process, and the sale of assets will help the company remain viable until a buyer can be found. They are also one way of allowing the management of a former company to buy the assets of that business, and form a new company, without the financial problems that made the old business insolvent.

Companies who use the Pre Pack Administration process benefit by using the value of their assets to eliminate their current business debt, and emerge from the process as a much more viable business, which is able to carry on trading under new management. Employees are usually transferred to the new company, so they are able to keep their jobs, working for the new business.

Many creditors are unhappy about the use of Pre Pack Administrations because they have very little involvement in making sure they get the best possible settlement from any deal. The fact that the creditors will be the ones to lose money, as the company simply wipes out its debts and carries on trading under different management, means Pre Pack Administrations are not popular with everyone. Whatever sale is agreed during the Pre Pack Administration will decide what creditors receive, and they simply have to accept this.

The reality is, if a company were to continue through the insolvency proceedings, creditors would probably receive a lot less than they would form a Pre Pack Administration process. Insolvency Practitioners are only likely to recommend a Pre Pack Administration if it is the best way of settling the former company’s debts, while still making sure the new management can continue trading, and keep offering people employment.

With more an more businesses getting into trouble, Pre Pack Administrations have become more widely used, even though they have always been available as a means for dealing with insolvency. Make sure you seek professional advice is you are considering a Pre Pack Administration as a way to help your business out of financial trouble.

Technorati Tags: business, finance, insolvency, pre pack administration

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