To start the process of pre-pack administration, first the Directors of the business must decide that the business is insolvent, but that they believe the business is still viable and that it is worth selling to a third party or a phoenix company in order for it to continue trading under a new name.
The process of pre-pack phoenix is as follows:
The New limited company is registered
The directors of the old business register the new business. This will involve setting up a bank account and registering with HMRC. If the HMRC think that the Directors of the new business have not paid their VAT and other taxes they may request payment before they allow the new company to be registered.
Appoint a licensed insolvency practitioner
The directors of the old company must appoint an insolvency practitioner who will act as administrator during the process.
The company assets are valued
The insolvency practitioner will arrange for an independent valuation of the companies assets as a fare price needs to be paid for them, even if purchased by the phoenix company.
The assets are sold to the new company
The insolvency practitioner will negotiate the sale of the old company’s assets with the directors of the new business and will draw up the legally binding contracts of the sale. The assets are then transferred to the new company.
A Creditors Meeting is held
The insolvency practitioner then holds a meeting with the creditors and explains that the business has been sold. The insolvency practitioner must give the creditors detailed explanations of why each action has been taken and why pre-pack was the best course of action, they must show that pre-pack was conducted in the creditors best interests.
The Old Company is liquidated
At the creditors meeting, the insolvency practitioner will recommend that the old company should be liquidated and that the proceeds from the sale of the assets will be distributed between them, following this the company goes into formal administration and is liquidated.
The importance of an insolvency practitioner
pre-pack can only be undertaken if managed by a registered insolvency practitioner. An Insolvency Practitioner must follow the strict legal guidelines and will have responsibility to all creditors so they must keep detailed records of the process as they will need to prove that Pre Pack Administration was the right solution for each case.