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How to do a Pre Pack Administration
The first step is to open a new company. The directors of the new business will often be the same as the directors of the old but this does not have to be the case.
The directors of the old business appoint an insolvency practitioner who will obtain an independent valuation of the assets of the company. A sale and purchase agreement for the assets is drawn up.
The insolvency practitioner will apply to the court to put the company into administration. Once they are appointed, the administrator will sell the assets of the old company to the new business as per the sale and purchase agreement. The new business then begins to trade.
The administrator will normally liquidate the old company and share any proceeds of the sale of its assets between the creditors.
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When to use a Pre Pack
The key to using pre pack administration is that the underlying company needs to be sound and profitable.
Where a business is fundamentally sound but still insolvent because of the weight of its debts, pre pack administration should be considered.
A pre pack will allow a new solvent business to start to operate in place of the old but without the burden of any debts. The business is therefore given the best possible chance of survival.
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What will pre pack administration cost?
The fees of the insolvency practitioner to implement a pre pack solution will be paid out of the amount raised from the sale of the old company’s assets. As such, the cost of implementing a pre pack solution will depend on the value of these assets.
Generally an insolvency practitioner will not be able to take on a pre pack unless the purchase price of the old company assets is at least £15,000.
These funds could come from an external investor. It is also common to borrow the required funds. Such borrowing is secured against the value of the assets being purchased.
As well as the initial investment required to purchase the old company’s assets, the new business may also need working capital to fund it through its first few months of existence. A VAT deposit may also be required.
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