The Pre Pack Administration Process

So, what exactly is pre pack administration? Put simply, it involves selling an insolvent business prior to it being entered in to administration. The insolvent company can be sold to anyone, but the buyers are often the directors of the company itself. They can do this because they are not actually buying their old company as such, because it will be a new legal entity by the time that the sale goes through. One of the main differences between pre pack administration and other insolvency options is that unsecured creditors do not have to be consulted. 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. Once the precise details of the sale have been decided upon, the insolvent company is then entered 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. To some people, it can seem that pre pack administration offers directors of an insolvent company an easy way out. They can pretty much continue as they were before, whilst their creditors are left to pick up the tab. That is a simplistic view though, and a framework is in place to ensure that the system of pre pack administration is not abused. This system is meant to benefit insolvent companies, not the directors of those companies. Directors found to using pre pack administrations solely to advance their own interests can be, and are, taken to court for their actions. If you are unsure whether pre pack administration is the best way for your business to proceed, then you should seek professional advice as soon as possible.

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