Prepack Administration is a relatively new insolvency process which is gaining popularity because it allows a viable but insolvent business to be sold in order that it can continue trading under a new name without the burden of its debts.
Once the process of Prepack has been started the limited company is protected from action by creditors. The old company can then be sold to either a third party or a phoenix company, which is where the directors form a new company in order to continue trading.
Prepack is the pre-packaged sale of the companies assets and trade, so a new company will need to be formed so that the old company can be simply transferred to the new company will minimum disruption, following the sale the old company will be put into administration.
What is a Phoenix company?
A ‘phoenix’ company is a company that has been set up by the existing directors of the insolvent business before it goes into administration, the Phoenix company then purchases the assets from the insolvent business before it goes into administration, in order to continue trading.
Phoenix companies are popular because often companies who are facing financial difficulties may see that the business itself is still viable but just needs a fresh start without the pressure of mounting debts which are bringing the original business down.
In order to set up a phoenix company the company will need to raise the funds to be able to buy the business and buy its assets. Even though the Directors of the original business and the Phoenix company are the same they must still pay a fare price for the business and its assets.
In order to set up a Phoenix company the directors need to:
Set up a new limited company
Appoint an insolvency practitioner to oversee the process
Protect the assets
Raise the funds to purchase the business and assets
Hold discussions with your Bank
Hold discussions with HMRC
Advantages of Prepack and Phoenix
The biggest advantage of prepack and Phoenix is that the business can continue to operate, whilst getting rid of their debilitating debts. The process also saves staff their jobs and is relatively quick and easy to arrange which means that often people have no idea that a prepack has taken place.