A pre-packed administration is a procedure that allows an insolvent but viable business to be sold partly or as a whole to a trade buyer or to one of its existing directors where the old company shall cease to exist while its assets and operations shall be transferred to a new company.
This method is a powerful and legal means to save businesses that are struggling in the finance department. It’s most celebrated benefit would have to be that regarding continuity. The pre-pack administration further strengthens the entity’s going concern and keeps liquidation at bay as it protects the company from any further threats. However, it is to be remembered that all this are only feasible if the pre-pack is carried out before a winding up petition arises.
The method also aids in ensuring that there are minimal if not an absence of operational hiccups. Delays, obstructions and hindrances are avoided at best because the transition allows for a flow instead of a cut which will happen should liquidation comes to play instead. The continuity also allows the entity to bounce back and regain its ground instead of fall through the cracks.
Furthermore, a pre-pack is also considered to be a restructuring procedure. The change in management allows for improvements, upgrades and assessments to be done. A struggling entity has problems and sometimes it takes a different perspective to finally solve it. The changes of course come after careful planning and examination.
The business is likely to be set free from certain debts particularly unsecured ones as well as unwanted or onerous contracts. Although redundant positions may be scraped out if present, a pre-pack still saves employment. Personnel are likely to keep their jobs as opposed to a deliberate and outright liquidation where no one is spared.
The economy in some way also benefits from the procedure. A business going under can hurt the economy becomes it means hundreds or thousands of lost jobs. A company’s demise will also affect other entities because their goods and/or services are likely to be used by another organization. It’s like a domino effect. Even if the struggling entity is under new ownership, the benefits it creates are still magnanimous.
We can therefore conclude that a pre-pack administration procedure can definitely save businesses. So if you happen to find yourself under some trouble, this is an option that is well worth considering.