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[JacksonL]

Hello. I am considering a pre pack administration. Can you let me know the potential pitfalls and downsides that I need to watch out for. Many thanks

[Steven Jackson]

Hello JacksonL

You are right to consider all the angles of the pre pack process. There are a number of downsides that you need to think about.

Clearly you will need to have the necessary funds available to buy the assets of the old business. This could be a significant up front investment which would not be required for example if you used a company voluntary arrangement.

You also need to understand that the old business is likely to be liquidated. This will then trigger an investigation of the director's conduct by the liquidator. If any directors are guilty of wrongful trading, this could lead to their disqualification or even liability for the company's debt.

[Graham Wilson]

Hi JacksonL

As Steven has said, one of the main barriers to carrying out a pre pack is securing the funds necessary to buy the old company assets. There are different options to achieve this. For example, it may be possible to secure the finance required against the value of the assets being bought.

The other thing to be aware of when considering the cost of a pre pack is the working capital required to get the new company up and running. Even though there may be ongoing business, revenues may still take a month or two to come through.

[Derek Cooper]

Hello JacksonL

As the other posters have said, raising the funds to buy the old company assets is generally the stumbling block that prevents a pre pack solution. If this is the case, then a sensible alternative to consider is a company voluntary arrangement (CVA) which needs very little up front investment. A prepack is not always the answer for a company in financial difficulty and you need to discuss all your options with an expert before deciding the best way to proceed.