If a company is facing financial difficulty, two of the options they may have available to them are ,company administration or ,pre pack administration . Whilst these two insolvency procedures are both forms of administration, they have crucial differences that it’s important to be aware of. In order to ascertain the difference between administration and pre pack administration, let’s start by looking at what each of these processes involves.
What Is Company Administration?
Administration is a very useful process for protecting companies that are facing increasing pressure from creditors, as it provides an automatic stay on any current or pending legal actions. This provides the company with the opportunity to restructure (with the potential to return to profitability), or to facilitate the sale of the business and its assets on a going concern basis. The aim of a company administration may also be to offer creditors a better outcome than would have been the case had the company gone into liquidation. Once an administrator has been appointed, there is a 12 month period in which the administration is expected to be achieved.
What Is Pre Pack Administration?
When it comes to telling the difference between administration and pre pack administration, you’ve probably guessed that there’s a big clue in the name. ‘Pre pack’ administration is the process in which the sale of a business and its assets is arranged before an administrator is appointed. The agreed sale is officially implemented shortly after the administrator has been appointed. It’s important to emphasise that with this type of administration, the business is effectively sold before the administration is announced.
Administration Vs Pre Pack Administration – What’s The Difference?
The crucial difference between administration and pre pack administration is when the sale of the business is negotiated. With a pre pack administration, the sale of the business and its assets is negotiated before an administrator is appointed. However, with a company administration, the business is only marketed to potential buyers after an administrator has been appointed.
Why Is This Important?
The difference between administration and pre pack administration has an important impact. The main advantage of selling the business ‘pre packaged’ before an administrator is appointed, is that it allows the business to be sold at the best possible price before news of the insolvency is announced. As the sale of the business will always be made on a going concern basis, the process also allows the business to continue trading, thus helping to preserve jobs.
In a regular company administration, creditors and all involved parties will be notified of the administration before it is sold. However, with a pre pack sale, the arrangement is made before creditors are informed of the administration. As we’ve mentioned this is the main difference between administration and pre pack administration. Because of this, pre pack administrations often come under fire from creditors who object to the business being sold before they were notified, particularly ,if the sale is made to a connected person. However, it’s important to emphasise that the process has major advantages that ultimately work to benefit creditors, and there are regulations in place to ensure that the process is always administered fairly.
Which Is The Right Process For My Company?
Now that we’ve established the difference between administration and pre pack administration, you’re likely to be wondering which is the best option for your company. For a company to enter administration, it needs to be decided that a viable business exists i.e that the company could be sold on a going concern basis or be recovered through a restructuring programme. If there is not a realistic chance of recovery or sale, then directors will need to look at ,liquidating the company instead.
Determining the correct insolvency procedure, will always depend on the individual circumstances of the business. That’s why, ,if your business is facing financial difficulty, you should always consult the advice of a licensed insolvency practitioner as early as possible. For informed, confidential advice, please don’t hesitate to ,get in touch with Ballard Business Recovery today.
