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Our company is really struggling but the business could be viable.

What is a pre pack administration? 

restart using a pre pack administrationpre pack administration is a powerful, legal way of selling the business on to a trade buyer or a third party. Alternatively, the business can be sold to the existing directors operating under a new company (or "newco") if the business is facing serious problems and creditor threats.  The "newco" will need to be viable and have funding in place so that it can buy the assets of "oldco" at fair value.

If a winding up petition is threatened, this can be a powerful solution. Don't wait until a winding up petition is issued through, because pre-pack is not permitted after it has been issued.

Advantages of a pre pack administration


         
  • The continuity of the "business".
  • Debts can be written off
  • No interruption of the business
  • Speed of execution
  • Preservation of value
  • Lower costs than trading administration

When the plan is ready and a contract of purchase is drawn up.  The company is quickly protected by the Court - allowing the administrator to sell the "business and assets".  This gets rid of debts, unwanted or onerous contracts, and possibly some employees (although in most circumstances there could be TUPE issues that need to be addressed) and there can be no interruption to the business, which in itself can destroy value.

Costs are lower as the administrators do not need to find funding to trade the business. The process, including the preliminary marketing, professional valuation work and discussions with creditors, can be very quick and done in a few days if necessary.

If the business is to be sold to a connected party, i.e. the former directors, they will need to be able to fund the acquisition of the assets. There are specialist funders who can help with this, call Keith Steven on 07974 086779 for guidance. The business and the assets will need to be independently valued to avoid problems of under valuing assets.  For more guidance on the rules and procedures see this page

Disadvantages of a Pre Pack Administration


There are some disadvantages to the process which are as follows

  • Negative Publicity
  • Directors can be seen to be shedding liabilities
  • Unsecured creditors think they have no say in the process and feel they have lost disproportionately
  • The eventual sale price seems low to just move things quickly
  • The company may end up being sold to a competitor
  • Loss of control by the directors - New funders or private equity may insist on the removal of some or all directors
  • Job contracts have to carried over into the "newco" under TUPE Rules

However, it should be remembered that the business was already insolvent prior to any appointment and a protracted process ending in liquidation could have been the alternative - possibly with the loss of many more jobs and an almost certain destruction of value following publicity and delays

Following the controversy, the UK Government launched a consultation process on reform to the pre pack administration process and subsequently issued a report in June 2014, with some recommendations. Read the review here. Insolvency Practitioner, Eric Walls, has also reviewed the investigation into pre-packs over at Insolvency News

The result of the government's recommendations is the pre-pack pool (launched in 2015). However it appears that by 2017 only a couple of people had consulted the pool!  

Insolvency practitioners are subject to strict codes of practice to avoid abuse - this is called SIP 16 and has been changed to incorporate the use of the pre pack pool.

Have a look at the steps set out below or see our flowchart of the pre pack administration.

For more information take a look at our administration pages
or you can read our case study of a pre pack administration for a London IT Company

Why not call now for help: 08009700539 or if you need urgent help call Keith Steven on 07833 240747

Want to place your company into pre pack administration? Call now for help: 08009700539 or if you need urgent help, call Keith Steven on 07833 240747.

We are experts in pre pack administrations and all other insolvency options. 
If you give us a call on 08009700539 or 07833 240747 (out of hours) or email our advisors on help@ksagroup.co.uk. we can advise you on whether a pre pack administration suits your particular circumstances. We have years of experience with HMRC, banks, creditors, suppliers, shareholders, lenders etc and we know their likely impact on your business.

KSA Group saves 65 jobs in pre-pack deal. Click here for more details.

Request out FREE 40-page guide for worried directors, full of tips and advice on everything from administration to personal guarantees to rescue options. 

Step 1

"Your Company Ltd" takes expert advice from insolvency practitioners or turnaround practitioners on its very poor financial position. It is likely that the company has threats from landlords, HMRC for PAYE and VAT, the bank and many trade creditors. The directors are worried about wrongful trading and personal risk. The business may have onerous contracts or too much property, too many employees and or lost market share/customers.

This advice should be thorough and a report prepared in writing for the board and possibly for the bank. All options such as company voluntary arrangement, trade sale, refinancing, administration, creditors voluntary liquidation and pre-pack administration must be considered as part of the new SIP 16 rules (see step 3).

If there are good reasons for pre-pack this option should be very carefully considered by the board of directors. If a decision is taken to go down this path a board meeting should be held and a resolution passed stating the company's board will consider the option in greater detail.

It's likely the resolution will include the appointment of advisors either insolvency practitioners (IP), turnaround practitioners or accountants to act as advisors to the board.

Step 2

If the plan is to sell the business (not the company) to a "newco" then a business plan for the newco must be drawn up. We recommend that this includes detailed profit and loss forecasts, cashflow forecasts and balance sheet forecasts. This will give an indication of working capital requirements. The proposed administrator will require this as evidence that the new company can be viable.

If the plan is to sell to an existing trading company, the IP will require copies of management information and accounts from that buyer. Again this is necessary to ensure the acquiror is viable and can afford any payments for the assets being acquired.

A qualified accountant should be contracted to provide this forecast pack in my view. My trained accountants and specialist forecasters can provide such a service.

Step 3 - Compliance issues

Under insolvency practitioners guidelines (known as SIPS), the IP must market the business. Often this requires sending sales memos to a database of potential buyers, or the IP may place an advert on their website and/or a local or national newspaper. They could list it on websites such as ip-bid.  

If they get no interest or no indication of interest they can then sell to the "newco" or third party. If there is a lot of interest and several offers, beware your business could fall into a competitor's hands! You may still be able to buy the business back, but the outcome is not under your control.

For an example of this risk see this link to the Daily Telegraph How the door almost closed on a pre-pack (click link)

The IP will also have to get formal valuations of the assets, intellectual property and or goodwill of the insolvent company by RICS qualified surveyors. Generally any offer needs to be commensurate with such valuations.

If your company reaches this stage and you and your colleagues are planning to buy the business, you must be careful with regards to your personal position. As directors of the dying company, you have a fiduciary duty of care to the company's creditors.

Starting "newco" can put you at risk of conflict of interest. It's likely that you will need separate legal advice on both companies. Best to talk to lawyers with insolvency and pre-pack experience. Contact Keith Steven for a list of good lawyers.

The IP will take advice from his lawyers as to compliance and risk. He may require this advice to be paid for along with his disbursements. Strictly speaking he cannot charge time costs in advance for the pre-pack work but he will charge for consultancy and fees.

WARNINGS?

Beware. Ensure that the pre pack process can be carried out under your current client contracts, and your connections to the bank. (The current stand point of several clearing banks is no they won't support pre packing to the incumbent directors/shareholders).

Will your landlord(s) allow a new company to occupy their property? Are your suppliers prepared to supply a newco? Will your creditors be angry about this approach? Some readers may have seen negative media coverage of pre-packs. In future we see many more people attacking pre-packs, especially creditors and the media.

Step 4

You will need finance to fund the acquisition of the assets and business. There are many specialist lenders who can provide: factoring, asset based lending, loans and bank facilities. Some venture capital companies or angels may help fund the pre-pack as part of a "buy and build" strategy. We have a number of contacts that can help with this.

Financing a pre-pack in 2017 is likely to be very difficult and will probably require personal guarantees from the directors for SME's. Larger companies may find that the private equity and venture capital buyer, removes the directors as part of the pre-pack conditions.

Contact us now on 08009700539 or contact Keith Steven by email on keiths@ksagroup.co.uk if you need finance.

Once again the funders will require a detailed plan supported by forecasts, they will want to test the valuations, the possibility of making and funding a loss and how their security needs will be met. So it's vital to get these built. Call us if you need that done.

Step 5

Assuming that you have raised the finance, the proposed administrator has satisfied their compliance requirements and the board of "newco" believe they can fund the acquisition, then its all systems go.

A contract is likely to be drawn up that appoints the proposed administrator formally. They will then initiate the pre-pack administration by contacting any floating charge holders like banks or lenders with security. If they have no objections (and often they are involved in funding newco) then they can proceed.

Beware some banks will NOT allow a pre-pack to a related party. RBS, HBOS and HSBC for example will not generally countenance a phoenix with/to directors /members of the failed company. So it may be necessary to replace the bank debt first.

Assuming all is approved, then the administrator makes an application to Court stating his proposals. Almost immediately after that the business is sold to a newco or third party.

A number of high profile companies have used this procedure recently: Jacques Vert, Joy, and Jones the Bootmaker Many others are looking at it as an option.

This can be done on a Friday night and by Monday the business is trading virtually uninterrupted. Having bought the company name, the "oldco" see its name changed to something else, like "Your Company (Realisations) Ltd".


Be careful about TUPE issues

TUPE is the acronym for Transfer of Undertakings (Protection of Employment ) Regulations. The idea of TUPE is to ensure that if a business is sold to a new owner then the employees are protected and their contracts are honoured by the new owner. In theory the newco will need to take over all the employment contracts which might make cost cutting difficult. However, the law is quite fluid on this point and we would advise that you take legal advice on this aspect before considering on this course of action.

Vertu considers a pre pack administration

30-Jun-2017
Vertu is a luxury phone maker, previously owned by Nokia, with devices ranging from £7,500 to £16,400. Aimed at celebrities and the super rich these extravagant devices are made out of premium materials with exclusive features such as ring and alert tones, created by renowned composers a..
Read More

Pre Pack Pool not effective according to MPs

02-May-2017
Ministers have been urged to tighten the rules around pre-pack administrations after figures showed that a voluntary system for preventing abuses was largely being ignored. Only 28 per cent of eligible cases were referred to the Pre Pack Pool in its first 14 months, according to its inaugura..
Read More

Advertising technology start up company bought out of administration

26-Apr-2017
Update: Ve Interactive has been bought out of administration in a pre-pack administration deal, securing 1000 jobs. The company will continue to trade under management of the CEO Morten Tonnesen and MD David Marrinan-Hayes. Ve Interactive is going into administration, after failing to secure s..
Read More

Agent Provocateur to be sold in pre-pack administration deal

02-Mar-2017
The national lingerie chain is to be sold in a pre-pack administration deal later today, according to the Telegraph. Owner of the national lingerie company, private equity firm 3i, had been looking for a suitable buyer over the last few months as a result of the business suffering from falling..
Read More

Triton Global bought in pre-pack deal saving 215 jobs

25-Jan-2017
Insurance law firm, DWF, has bought Triton Global in a pre-pack administration deal, saving all jobs. The firm has also bought Triton’s technology business, 3Sixty, which specialises in developing systems for asset management and incident notifications. Licensed as an alternative busine..
Read More

Peyton and Byrne bought in a pre-pack administration deal

21-Oct-2016
The catering firm has gone into administration after losing two major clients, Kew gardens and the British Library. However, the French firm Sodexo has acquired the company’s contracts in a pre-pack administration deal, while the Peyton family will continue running the cafe and bakery. ..
Read More

Andrew Page bought in a pre-pack administration deal, saving 2,000 jobs

05-Oct-2016
The Yorkshire-based vehicle parts company has been bought out of administration by Euro Car Parts, saving 2,000 jobs in the process. Upon appointment of administrators on Monday, Andrew Page was sold to LKQ Corporation, owner of Euro Car Parts. The sale secured the transfer of 102 out of 109 s..
Read More

Midlands-based recruitment firm saved in pre-pack deal

05-Aug-2016
Foresight Recruitment Solutions has been bought by large recruitment group, First Holdings (UK) Limited in a pre-pack administration deal. 21 jobs have been saved at the firm, which has been put up for sale at the beginning of the year. First Holdings expressed interest a couple of months ago ..
Read More


The pre pack administration process is perhaps better explained using a diagram

pre pack administration flow chart


Every business is different and every situation is unique."
If you give us a call on 0800 9700539 we can advise you on whether a pre-pack administration suits your particular circumstances. We have years of experience with HMRC, banks, creditors, suppliers, shareholders, lenders etc and we know their likely impact on your business.

Author: Keith Steven
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