MNT Pre Pack Liquidation Case Study

Company Description

Business descriptionTechnical design and assistance for the glazing industry
Employees3

Creditors

 

Bank£2,296.86
Trade£1,185.74
HMRC£10,152.79
Directors Loans£22,121.86
TOTAL UNSECURED DEBTS£35,757.25

The Background

The early stages of failure started due to the economic down turn and subsequent rapid decline of the construction industry. The company managed to survive the initial part of the recession from work in progress from a number of large contractual jobs. Once these contracts were completed however, there were no new projects to replace them and the company began to struggle to generate enough work to cover overheads and salaries.

A large contract was secured that promised many months of work and as other work had dried up the company dedicated all its resources to fulfilling the requirements of this one single client. This work came to an abrupt end when the client providing the work started to feel the bite of the recession and could no longer provide any more work.  Due to having ‘all their eggs in one basket’ the company had no work to fall back on. Debts started accruing but the director were determined to keep the business alive in the hope the industry would make a recovery.

A short time before we were contacted, the company began to secure new clients which represented enough income to deal with running costs and salaries but was insufficient to repay historic debts. This prompted the director to seek professional help.

Wilson Field were contacted by the director to advise on the company’s financial position. The director explained the company had a good business model with plenty of work in progress, but historic debts had made running the business unmanageable. They required a procedure that could write off historic debts but allow them to start again with a clean slate, he also expressed an interest of buying the assets for use in a new company structure. A pre-pack liquidation was the most sensible solution.

The pre-pack liquidation Process

The assets of the company were minimal and limited to computers, old CAD systems and book debt. The director was keen to keep control of the book debt so long standing clients would not be contacted by an external debt collection company.

A new company was formed (referred to as a phoenix company) and the director sold the assets before appointment of a liquidator. The justification for this was mainly due to increasing pressure from creditors that could have resulted in bailiff action and the assets being seized. The director instructed an independent qualified valuer to ascertain a market value for the assets and the book debt. The new company (funded by personal money introduced by the directors) purchased the assets from the old company. On transfer of the monies, the assets were officially sold and therefore could no longer be confiscated by bailiffs.

On appointment of a liquidator, the full amount paid for the assets was transferred to Wilson Field. The liquidator investigated the sale and had their own independent valuation carried out for the assets. The result of our valuation mirrored the one carried out by the directors so the transfer of assets was finalised.

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