Pre-pack administration is the process where an administrator has been appointed to run a failing business and the decision is made to sell the business and/or its assets before a meeting of creditors is held.

This situation is different to a standard administration where the administrator’s proposals would not be carried out before they were ratified by creditors at a creditor meeting.

The rationale behind a pre-pack administration is that the administrator is likely to get a far better return from the sale of the business on behalf of the creditors if the sale is concluded swiftly. If the administrator waits until such a sale is agreed at a creditor’s meeting, the value of company assets such as good will may be significantly reduced with old customers moving elsewhere and key employees finding alternative employment.

Very often it is the directors or the investors behind the old company who believe in the ongoing viability of the business model. However they are unprepared to invest more money in the current organization as this is likely to be simply swallowed up by the company’s creditors. Instead, a new business is set up as the vehicle which purchases the assets (and even the name) of the old company.

The new business is given the best chance of success as all the debts remain with the insolvent company, which is likely to be liquidated. For this reason, pre-pack administration is often known as Phoenixing as a new company appears to rise up in place of the old failing business.

The best way to understand which solution is right for your company is to speak to an expert.

The Beat My Debt Forum is great place to start, giving online access to industry experts.

Alternatively you can call Beat My Debt free on 0800 077 6180 and speak directly to one of our expert advisors who will give free, independent and confidential advice.