The economy of the world in general is in turmoil as current recession has caused a number of businesses to experience financial problems and downtrends. To save your business from meeting the similar fate, you can place the company under a pre-pack administration.
Pre-Pack administration is a kind of legal process for a business. The company is repackaged – as a whole or just a part of it. The bad elements of business are discarded and the good parts are retained. A new company containing only the positive aspects is formed and is placed under the stewardship of a new company. The new company is called Phoenix Company – a term that signifies rise from the ashes.
What a company in distress may experience
Any company in difficult situation has to face some financial and legal problems. There could be issues regarding shareholders, suppliers, Banks and other creditors. It may have some deficiencies in taxes, VAT and other legal matters. It may no longer be able to pay the monthly invoices from suppliers and this is further coupled with the problem of manpower over-employment as well as declining market value. It may also be possible that contracts previously entered prior to the business downtrend start haunting the company for compliance, something which the firm can no longer afford to do.
Problems of the directors of a company in distress
As the directors of a company in distress are liable to the legal and financial difficulties, these management officials are threatened on the repercussions of the problems of the business. They worry about the incessant unstable trading of their company stocks and also become anxious about their liabilities in transactions which they had guaranteed. And worst, they are bothered with the possible effect on their properties that are used by the business. With these problems, the recovery can only be started through a pre-pack administration.
To start with the rehabilitation process through pre-pack administration, the company may hire an experienced insolvency financial adviser. The company is required to prepare a full report on the financial standing of the company. All directors and creditors should be furnished with copies of this report.
The following are the options to be suggested in the report.
- Sources of finances
- CVA or company voluntary arrangement
- Voluntary liquidation by creditors
- Pre-pack administration
The directors and shareholders of the company in distress should meet to decide on the options to take. When decisions on important matters are taken, the insolvency adviser will take the reign in marketing the rehabilitated company.
Finally, it is important to choose a competent insolvency adviser; otherwise, the business in distress has good chances of collapsing sooner than later. A competent insolvency advisor can lend a helping hand in taking a business to recovery route.
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Joanthan writes for Finance 7 based in Sheffield the UK. Leading specialist’s in Pre-Pack Administration and all types of Business Financing.