We’ve all heard of the various methods by which insolvency or a financial crisis can be solved; however, a smart entrepreneur will not only study them but also meticulously scrutinize every detail to better weigh the options. After all, the decision one makes can either make or break the business. It’s a tough job and one that’s utterly sensitive. This is why today we’ll help examine one of the more popular methods called the Pre Pack Administration.
Also referred to as a pre-pack, it is a legal and powerful tool that allows a viable but financially troubled company to sell a part of or its entire business to a trade buyer or third party and in some cases to one of its existing directors where it shall continue to operate under a new name. In essence, it is a transfer and restructuring approach.
Like any other option, it has its own set of pros and cons as follows:
- It permits operation fluidity. Operations go on as is and there is very little to no amount of interruption allowing the business to continue trading as should be.
- There is business continuity. With a pre-pack, the entity continues to live even if it shall operate under new management and under a new name. It fosters the going concern principle.
- The entity’s value is upheld. Before the insolvency reaches the general public, the use of the method allows for the company’ value to be held intact. Little to no decline shall be seen which is good especially that the entity is aiming to bounce back.
- Employment is preserved. Unlike liquidation, the pre pack administration saves jobs. The former comes with cost-cuts and job cuts and even a full on layoff. The latter on the other hand does not and any amount of layoff, if any, is minimal and pertains only to redundant positions.
- There lies a possible undervaluation. Due to timing constraints, there might not be ample time to market the sale which may lead to owners selling the assets for lesser than they intend or want to. This, however, is avoidable given the right strategies.
- A pre pack administration comes with misconceptions. Despite its popularity among organizations, a pre-pack isn’t very common in the ears of the public resulting to various misconceptions about it. To some, using the method abuses the chance to write off certain debts as well as the lack of transparency.
The manufacturing industry is a huge part of the business market. There is a lot to manufacture from food to clothes to shoes to phones to computers to appliances to furniture and many more. It is a well know fact however that many of businesses today under such umbrella often simply come and go. They open shop and then later on close. Not everyone gets to stay and live for long. With business comes risk and risk translates to losses and plummeting finances. What is there to do when such things occur? If losses rear its ugly head, what can you do? The answer is to take a look at the business recovery options available and pick one that suits to solve and fix the problem. Listed below are some of these.
- Factoring or Receivables Financing is one way to do it especially if insolvency isn’t the case and should the company be suffering from troubled cash flows, low cash and high receivables. There is nothing exactly wrong with having a huge level of trade receivables except if they keep most of your cash locked up for prolonged periods. Factoring or receivables financing allows entities to advance the cash locked up in the receivables and customer invoices even before such have been paid by owing customers allowing it to be used for operations and other necessities deemed fit. Additionally it helps better cash flows, reduces bad debts and improves the cash levels of your financial statements.
- The Company Voluntary Arrangement allows the company to continue operations under the agreement that it will repay what it owes to its creditors over a fixed period of time. Such has to be agreed upon by at least seventy five percent of the creditors. The catch however is that the scheduled payments have to be fulfilled otherwise creditors can put you up for a forced winding up procedure. The good thing about this is that it allows the entity to re-organize, reboot and revive its operations on a breathing period.
- The Pre-pack Administration is a popular restructuring solution that allows the entire business or part of it to be sold to a third party and operate under a new name. It gives creditors a much better return as opposed to liquidating the company. Additionally, going concern is strengthened. However, it should be noted that not all companies may take on a pre-pack administration. Certain qualifications must be met first and one of them is insolvency. Losses alone would not cut it.
These are only three of the many business recovery options available. It would be best to consult your adviser or a professional practitioner to get more sound advice tailor fit to your needs.