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Importance of Pre-Pack Administration While Winding-up Petition

petition

After the issue of winding up petition, it is essential to act immediately. You can save the company from liquidation by going through a specific process, among which is pre-pack administration. 

After winding up the petition, the company is unable to perform the following action:

  • The company cannot sell its asset as it cannot carry on trading after being declared insolvent.
  • The company cannot appoint an administrator by issuing a notice of Intention (NOI).
  • They cannot apply new charges or securities.
  • They cannot go through the creditor’s voluntary liquidation.
  • They cannot opt for pre-pack administration.

Even if you are not allowed to go through the above process, there are ways to rescue your company. To carry out business and save it from winding up petition, some procedures that you can follow.

How to enter into the administration process

To organize a pre-pack administration or make yourself an administrator, you will first request the court for an adjournment. 

Once the adjournment of the winding up petition, the administrator can then propose the CVA system to the company’s creditor. This system repays all the debts of the creditors over five years. But if the creditors do not accept the proposal, you can sell the company to a new company, or the current directors can purchase the company asset from their pocket.

Advantages of pre-pack administration

To understand the importance of pre-pack administration, let us know its advantages over the company. These advantages have been discussed for you down here:

  • No break-in trading: While going through winding up petition, it can de-promote the company to no small extent, resulting in customer loss. This de-publicity breaks the trading flow, and the company suffers a massive loss by fewer sales and no cash flow. 

However, pre-pack administration can help the company quickly transfer or sell off its asset to the directors. This system allows the company to retain the same premises, the same staff, and even the same company name. 

  • Cost-efficient: The system of pre-pack administration requires just a nominal fee for paying off the creditor. In return, they provide quick and immediate assistance, which is a lot more beneficial than other administration option that you can opt for while winding up the petition.
  • Staffs don’t lose their job: When a company becomes insolvent, it needs to perform cost-cutting or reduce the trading to survive. This cost-cutting involves reducing the staff of the company; hence they lose their job. But pre-pack administration services prevent a situation like cost-cutting and preserve the position of the employees.
  • The brand image remains unchanged: Winding up petition can de-popularise a brand to a large extent. It has a negative impact on its customer as well as investors. But pre-pack administration helps maintain brand image and avoids any lousy publicity of the company. It ensures that even after the company is declared insolvent, it continues its growth.
  • Your company can end contracts and costs that are not needed: When selling a company to a new business due to winding up petition, it has the chance of ending specific agreements. You can end Contracts that are not required by the company and adds to the needless expense. These contracts include a contract for retail space or office. This reduction can be possible as the court says that a company can end such agreements to reduce business costs. 

In the pre-pack sale, the company can end contracts like service contracts with other, property leases, hiring vehicle contract, etc. This end of contracts can reduce the cost in the future by reducing the tax of the company.

  • Maintain the director’s control: It provides the director some control over the business affairs even after winding up petition. Pre-pack administration does not give full control like other insolvency system but provides enough power to the directors. The directors can decide whom they want to sell their company to or even if they’re going to buy it themselves. The option of purchasing the company is taken up by many directors when the company is becoming insolvent when it becomes insolvent by a minor set-back. 

Conclusion

If you want your company to continue trading without any problem or need help with financial issues, pre-pack administration can provide you solution. It gives the company a second chance of growth without losing its identity or customer or staff. They are of great importance while cutting-off unnecessary expenses and contract for uninterrupted future sales. It can provide significant relief to insolvent companies.

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