When a director decides they’re better off without their company’s liabilities and wants to move their assets to a new company, a pre pack sale is a viable legal option.
Pre pack administration can be sought after a company is served with a winding up petition or when insolvency threatens. The pre pack process takes place when an insolvent company is sold, usually to the previous directors or management of the insolvent company.
Under the terms of the transaction, directors/management can buy assets from the administrator at an agreed price, before the company goes into administration.
The assets and employees can then be transferred to the new company. If directors/management are strapped for cash and can’t find the money to buy back their assets, they can be financed usually with security and or under a personal guarantee.
Creditors are only made aware of the sale once the pre pack has been agreed, as opposed to liquidation or a company voluntary arrangement (CVA) where directors must seek their creditor’s approval before deciding how to repay their debt.
Still, although this is a useful piece of administration legislation for re-acquiring assets, there are numerous ways to achieve this objective without going down the pre pack route.
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