The advantages and disadvantages of Pre Pack Administration

A new company can start trading in place of the old without the burden of its legacy debts therefore giving it every chance of success.
The new business has the opportunity to move to new premises thus leaving behind sites that are no longer suitable or have unfavourable lease agreements.
The employees are retained by the new company minimising the effects of redundancy which would occur if the company was simply liquidated.
Although creditors are unlikely to be paid in full, they receive a better than if the company was simply closed.
Suppliers and customers have the opportunity to continue to trade with the new business. This would simply be impossible if the company was liquidated.

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Up front investment is required to buy the assets of the old business although such funds can be borrowed using the assets themselves as security.
When the old business is liquidated, its directors will be investigated by the liquidator who must produce a director’s disqualification report. However, it is unlikely that directors will be accused of wrongful trading.
According to European law, all employees of the old business must be transferred to the new company under the same terms and conditions of employment. Pre pack administration cannot be used as a way of getting around a redundancy programme.
Although the return to creditors is likely to be greater than if the company was simply liquidated, they are still likely to suffer significant losses.

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