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Administration and Pre-Pack

When a company gets into financial distress, it may decide to go into ‘administration’. An administrator (a licensed insolvency practitioner), takes control of the business with a view to maximising the interests of creditors and, where possible, preserving the business and the jobs of its employees.

Up until fairly recently, administration was a process which involved a court procedure and chunky professional fees. However since the Enterprise Act 2002 it has become a far more streamlined process and is now regularly used as a rescue tool for businesses of all shapes and sizes.

Frequently an administrator has to act almost instantaneously in order to prevent all value leaking out of the business under his control and therefore a great deal of preparatory work is carried out in advance to locate a suitable buyer. Where a business is sold in such circumstances it is known as a ‘pre-pack’; in the right circumstances it can be a very powerful rescue mechanism.

However, recently there has been significant public disquiet about pre-packs. This is because they often produce a return for the bankers of the distressed entity with little or nothing going back to the taxman or the ordinary creditors. Furthermore many ‘pre-packs’ are sold on to new companies where there are common directors with the distressed business.

Sometimes a CVA will prove appropriate, sometimes a pre-pack needs to be used because of severe time pressures. On other occasions it may indeed be possible to turnaround a business on an informal basis with the help of new monies being invested and specialist professional help.

Turning Circle Solutions is highly experienced in helping you to select the right rescue technique.