Business Turnaround The Right Time to Use Pre Pack Administration
By: Derek Cooper
Submitted: 2010-01-21 15:10:13 | Word Count: 572
If your company is in financial difficulty it may be possible to avoid liquidation and rescue the business by setting up a new phoenix company which trades in place of the old without the burden of debt.
Pre pack administration (often known as Phoenixing) allows a new limited company to be set up which purchases the assets of the old business. The new company is then free to trade in place of the old without having to repay the old company s debt.
[ advertisement ]
At first glance, leaving the old company s debts unpaid may seem unscrupulous. However, where a business is failing, creditors are unlikely to ever recover much of the debt owed. A phoenix operation gives an opportunity for ongoing trade with suppliers and customers, and the retention of employees whom would otherwise face redundancy.
In many circumstances, the phoenix process should be considered as a very real option for business rescue.
Does the business have a real future?
The directors of the company must believe that without the debt which is current dragging the business down, there is a very real prospect that a new company can survive and grow. Investment will be required as the new phoenix company must be funded to allow it to purchase the assets of the old business.
Where funds are available which would otherwise be used to repay debt rather than build the strength of the business for the future, phoenixing may be appropriate.
Current premises are no longer appropriate
Because the phoenix process involves the incorporation of a new company, there is no obligation on the new business to continue with HP or lease agreements that were entered into by the old. This means that leases or equipment which are no longer required can be left behind.
If you wish to remain in the old premises then the strength of your hand in renegotiations with the landlord will clearly depend significantly on the ease with you could use an alternative premises.
There are some circumstances when phoenixing may not be appropriate:
Some employees are no longer required
It is important to note that pre pack administration will not automatically allow you to remove staff where you believe there is overcapacity or lack of needed skills.
European employment law (TUPE) states that if a business is purchased by another, then the employees of the old company must be transferred to the new with the same terms of employment and length of service rights. As such, if any employees are unfairly treated as a result of the phoenix process, they may have ground to claim against the new business for unfair dismissal.
I have a winding up petition
Having a winding up petition is a show stopper for the pre pack administration process. This is because once a winding up has begun, none of the company s assets can be sold before a liquidator is appointed at a creditor s meeting.
If you believe that your business is failing, pre pack administration is an excellent solution which you should consider to help you turn the company around. However, you must act as soon as possible and get appropriate specialist advice. The more time that passes, the more likely that the company s creditors will start to take action. If this happens, particularly in the case of winding up proceedings, your options will certainly be diminished, although there are still other solutions that may be usable.
Author Resource:-
Why not talk to us about how this solution could help your financial troubles, more details at http://coopermatthews.com/phoenixing.html Derek Cooper is Managing Director of Cooper Matthews Limited, they have significant experience in working with small to medium sized businesses.
