Most company owners and managers will agree that financial ability and liability are some of the biggest problems companies can face. Nonetheless, these are a frequent occurrence and they can result in more problems for companies, often bankruptcy. So, how do business owners deal with bankruptcy? Of late, more and more business owners have been turning to pre-pack administration when facing bankruptcy.
What is pre-pack administration?
Pre-pack administration allows companies to resolve their insolvency issues while still allowing them to continue with business without much interruption. Through this process, the sale of the insolvent company can be arranged easily and quickly. An ideal feature of pre-pack administration is that it can be bought back by the owners of the original company as it becomes a new entity once the sale goes through.
While pre-pack administration seems like an ideal way for companies to close their business, it is necessary that the precise details of selling the business are decided before the company can actually be placed in administration. Since administrators can authorise sale of the business almost instantly, the company is left in administration for a short while. As this process is very sensitive and can affect different parties, it is important that it is documented completely and is carried out transparently.
There is no doubt that pre-pack administration can be beneficial for many companies. But owners should be aware that the process is usually only used in the company’s best interests and not to favour the directors of the company. Legal action can be taken against directors who use pre-pack administration for their own interests. For this reason, it is important to hire a professional liquidation company to handle the process.