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Pre-Pack Administration & Liquidations

Pre-Pack Administration & Liquidations

Authored by Phil Meekin

Phil Meekin

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Approximate read time: 2 minutes

The current economic climate has seen a growth of businesses being pre-packed.

In simple terms, in a “Pre Pack” a buyer is lined up for a struggling business before it goes into administration or liquidation.

It is invariably an option taken when all others have been exhausted. A common situation is where a business is carrying historical debt which it can no longer afford to service. The core business may well be still viable and of course if peoples’ jobs are on the line it may be judged to be appropriate to pre-pack. In many cases the owners of the existing business form a new company which in turn buys the assets of the old company from the Liquidator or Administrator, but leaves behind the debts.

There are those who feel this is morally wrong but there are always differing viewpoints. The procedure of a pre-pack administration is perfectly legal but has to be arranged within strict guidelines. Administrators are appointed to act by the Court. As with many things in life there are winners and losers. A topical case was the recent sale of the assets of Cobra Beer to Coors, immediately after Cobra Beer entered administration.

sold those assets back to a new company owned by the original owners. Understandably, such situations can provoke anger among suppliers and landlords, many of whom can be left with unpaid bills. However, quite often some, if not all, staff keep their jobs.

Tax-payers may question why they should foot the bill for unpaid tax bills often written-off in such arrangements but that too can be countered with the savings of not paying unemployment benefits. It is true to say that inevitably business owners themselves will have already lost significant amounts. One criticism often raised is that the assets are sold at below market value (which reduces the amount available to pay creditors).

In reality there is often a limited market for the assets. For example, I spoke to a watch repairer whose assets comprised £25000 worth (at cost) of stock; when I asked what the stock was, he told me it comprised 3 million cogs, springs and squiggly bits that make up a watch’s innards! He bought them back from the Liquidator ( -not Wilson Field in this case) for £3000, which was the best offer the Liquidator could raise. Looking at the bigger picture, as a nation we can ill afford for the economy to contract when it is slowly climbing out of recession – so the more businesses which are saved the better. In such situations the Administrators (-all are Licensed Insolvency Practitioners) work under very strict rules to obtain the best position for creditors of the company. Wilson Field employs a number of Licensed Insolvency Practitioners and other professionals.

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