A pre-pack liquidation is a commonly used, informal term where a newly-formed company (sometimes referred to as a phoenix) purchases the assets of an existing company which is then liquidated.
When is a pre-pack liquidation appropriate?
To start the process of a pre-pack liquidation, a company must be considered insolvent and under threat from pursuing creditors. Where it may be possible to trade out of the situation, other insolvency procedures such as a CVA or refinancing may be more appropriate.
However, if it is clear that the company has a profitable core business, but pressure from creditors is threatening its existence, then a pre-pack liquidation could be the way forward. Pre-pack liquidation may be appropriate where the company:
- Has a good business model with a full order book but has severe cash flow problems.
- Is suffering from creditor pressure that could result in the seizing of assets or other actions.
- Can be profitable but is hampered by historical debts.
- Has suffered a bad debt and this has affected the health of the company.
Your company may qualify for a pre-pack liquidation if it is unable to repay debts as and when they fall due but crucially the core business is still profitable.
What are the benefits of a pre-pack liquidation?
A pre-pack liquidation provides a swift secure and planned transition of the business to a new company by:
- Agreeing the sale of business assets at a realistic price in advance with a RICS valuer
- Creating a minimum amount of disruption to the core business
- Achieving the best price for company assets and increasing the possible return to creditors
- Releasing the business from leases or contracts that may threaten its viability
- Maintaining trade with existing suppliers and customers
- Preserving jobs for directors and employees
How does the pre-pack liquidation process work?
The pre-pack liquidation process is relatively simple and straightforward for the majority of companies going through this procedure. The pre-pack liquidation process is as follows:
Get in touch with an insolvency practitioner (IP)
When you get in touch with Wilson Field, we will assess the company’s current financial situation and discuss any likely creditor threats with you. We will then be able to advise you on all your options and any points you will need to keep in mind due to insolvency and other legislation such as TUPE (Transfer of Undertakings (Protection of Employment)).
If it is agreed that a pre-pack liquidation is the option for the business, then:
Obtain a valuation of assets
A valuation of assets will then take place by a RICS qualified valuer in order to obtain a realistic price which the director, or any other potential buyer, will then need to pay if they plan to buy back the assets. This is essential to ensure the best return to creditors is achieved. If the director of the old company buys back the assets, they can transfer them to the new company.
If necessary, we can help you to arrange funding
In some situations, you may require funding so you can afford to buy back your company’s assets for the new company. This is something we may be able to help you with as we can introduce you to a number of finance providers and investors.
Appointment of liquidator and our work
Once Wilson Field have been appointed as liquidators, we will put in place any processes that need to be done in order to close the old company and open the new company quickly so it can start trading. We will organise any meetings that need to be put in place and sell the assets to the bidder that provides the best possible return to creditors; this could be the director of the old company or an independent third party.