A Pre-pack Administration is one of many solutions available to struggling business entities. In this scenario, a viable but insolvent business is allowed to be sold, as a whole or in part, in order for it to continue trading but under a new name without the burden of its debts.
The purchase shall be awarded to a trade buyer, a third party or one of the organization’s current directors. The old company shall cease to exist. Its operations and assets shall be transferred to the new entity under a new name. The cash for the acquisition must of course not come from the entity’s own pockets. Simply put, the pre-pack is a means for financially troubled entity to regain itself and to bounce back.
The reasons as to why such a solution is favored by entrepreneurs and business owners are pretty much self explanatory. On the perspective of the employees, the pre-pack comes with advantages too which we shall discuss further below.
- It keeps the company alive. The procedure strengthens going concern which enables the organization to carry on and therefore save everyone’s jobs. Unlike a deliberate liquidation procedure, the pre-pack does not end the life of the business but rather prolongs it.
- Operations are not disturbed. If any, the amount is so little that it is barely noticeable. The transfer is rather smooth which avoids any disturbances, delay and glitch in operations allowing the organization to function as it is.
- The restructure paves the way for improvement. Part of the benefits that companies get out of the pre-packed administration procedure is the chance to improve itself, fix what went wrong and find new and better ways of doing things. This is good for employees because the entity recovers and progresses as a whole.
- Everyone keeps their jobs. Or at least the majority does. With restructuring comes improvement and sometimes there is a need to lay off a few workers, at least those that have unnecessary or redundant positions. Although a pre-pack will not be able to keep all employees within the ship, it surely keeps the majority afloat. Unlike the case with liquidations, both voluntary and forced, everyone sinks and loses their source of income. With as pre-packed administration, the majority does. Although it is also important to take note that it is possible that everyone gets to keep their employment.