How to do a pre pack liquidation or phoenix
Your company may be in a position where it is failing because it cannot pay its creditors. In addition company agreements such as premises leases are no longer appropriate. If this is the case, you may be considering simply cutting your losses and closing the business. The problem with this strategy is that the business idea and therefore certain elements of the current business assets may still be viable. However, if you simply liquidate the company, the assets could well be lost.
A pre pack liquidation (commonly known as the Phoenixing process) allows a new company to be formed which then buys the assets of the old failing business. Employees may be transferred to the new business. The old business is then closed (or liquidated) and proceeds of the sale of assets distributed to the outstanding creditors.
In order to successfully carry out a pre pack liquidation, there are a number of steps that will need to be carried out. The following steps are not necessarily sequential. The correct timing to undertake each will be advised by the insolvency professional working with the company board.
The cost of carrying out a pre pack liquidation process will normally consist of an upfront fee paid to the business insolvency specialist for the advice and assistance provided. Of course, then the funds required to buy the assets of the old business must be raised. The insolvency practitioner will take their fee for liquidating the old business from the money raised by the sale of the business assets.
The advantages of the pre pack process can be significant. The assets of the business such as important employee teams, equipment and good will are maintained where as they may break apart if a company is simply liquidated. In addition, the liquidator will generally get a better price for the assets (especially good will) and therefore better return for creditors if they are sold as a whole to start a new business. The new company has the opportunity to operate into the future thus providing a continuing trading partner for suppliers and customers both new and old.