If I do a pre pack administration, can I trade from the same premises?
For many businesses one of the advantages of a pre pack administration will be that they are able to continue to trade from the same premises. We investigate how this is achieved.
Pre pack administration (commonly known as business phoenixing) is a method of turning round the fortunes of a company which is at risk of failure because of historic debt.
A new limited company is set up which is then positioned to buy the assets and good will of the old business. The debts remain with the old company which is put into administration and liquidated.
Because the company assets are purchased as a whole, the best price possible can be achieved thus maximising the return for the old company’s creditors.
Evaluate business location
A major advantage of the pre pack process is that it gives the opportunity to evaluate the location of the business and whether the current premises are suitable.
If moving to a different location would be beneficial, this can be achieved without having to worry about the cost of trying to break a lease agreement. Because the lease is in the name of the old business, the new company can simply walk away without the burden of having to maintain payments towards the old lease.
More often than not, a phoenix company will want to remain in the same premises. This is normally possible and may present the opportunity to re-negotiate the lease.
The administrator of the old company will grant a license for the new business to remain in the same premises until a new lease can be agreed. This immediately ensures continuity of the business for staff and customers.
Renegotiate current agreement
The new company could simply take over the old lease. However, if different terms are required a negotiation with the landlord can take place. The strength of the new company’s negotiating position will of course depend on the ease of which it could move into different premises.
If the old company owned the premises in which it was located, then again, the administrator can grant a license for the new business to occupy the location.
The new company may choose to purchase the premises together with the other business assets.
Alternatively, it may simply pay a suitable short term rent until an alternative location is found or a new buyer is found who may or may not with to lease the property.
The cost of leasing or paying a mortgage on a business premises can be a very significant cost for a business. Pre pack administration gives the perfect opportunity to evaluate the suitability of a current location and allows the newly created company to walk away and find somewhere more suitable if required.
However, if the best thing for the business is to remain at its current location, this is also possible and depending on the demand for the premises, the opportunity may arise to negotiate a more favourable lease.