Why a Pre-pack Administration Can Look Good for You

When businesses face a kind of financial meltdown or distress this often calls for business recovery options. If liquidation can be avoided then they try as much to find the best means to possibly do so. No one would want to pack their bags empty handed after all that toil, labor and hard work not to mention the monetary capital that has been used. One of the many business recovery options available is what we call a pre-pack administration.

Business recovery prepack administrationMore commonly referred to as pre-packs, the pre-pack administration is a solution where a segment, branch or part and sometimes the entire company is sold with an option to later buy it back. This is employed by entities who are finding it hard to meet their financial obligations as they become due or as they mature. To provide for the lack in resources, the company is then sold in whole or in part to a new management. So what makes this option a good one then?

Firstly, a pre-pack administration allows for continuity, a strengthened going concern and therefore a prolonged business life. It allows for operations to continue with minimal to no cessations or halts. This is a good thing for an entity who wants to get back on track. Halted operations can cause a downturn in product or service output which in turn can lessen possible profits.

Second, it gives creditors an assurance that the company is willing and working on finding ways to bring in more resources and pay off their debts. Should a business choose to wind up instead this could mean that the corporate creditors will only be given a portion of the proceeds from the liquidated assets. There is less to no assurance that the amount owed to them will be paid in full.

Third, pre-packs retain employees, talents and jobs. Although lay-offs may occur in some cases such is better than having everyone go pack their bags and look for other employers. More employees get to retain their posts which are good both for them and for the economy. Liquidated businesses will mean lost jobs and lost jobs would give a detrimental blow to the economy.

A pre-pack administration is only one of the many business recovery options available to financially troubled entities. Should you use it or not will ultimately depend on the pros and consequences as well as the situation at hand. Talking to your consultants, advisers and industry experts are encouraged.

Why a Creditors’ Voluntary Liquidation Can Spare You a Massive Headache

There comes an unlikely event in a company’s lifetime where it would face the possibility of liquidation. This is often brought about by a progressive decline in sales, losses, rising liabilities and other unwanted circumstances. When things get worse and a company is deemed insolvent even after several attempts and after careful perusal of its affairs, a creditors’ voluntary liquidation is necessary otherwise you might just get yourself, the directors and the shareholders one big massive headache. But what is it really?

creditors voluntary liquidationA creditors’ voluntary liquidation is one of the two types of voluntary liquidations. Unlike the other kind, this one is undertaken by a company that is deemed insolvent. This means that the company and its officers, after having examined the state of its financial affairs, have deduced that its assets cannot anymore suffice for its present and maturing liabilities nor do its cash inflows exceed the outflows.

Under this process the company files for a state of insolvency and when such has been approved and validated, a liquidator is appointed to handle the process of liquidation and winding up. The liquidator is tasked with several responsibilities and the most notable of all would have to be the selling off of the corporate assets and the distribution of its proceeds to the respective stakeholders in an order of succession where creditors are favored over shareholders and owners.

So why does a creditors’ voluntary liquidation able to save insolvent companies from a big headache? It should be noted that it is illegal under the law to continue operations when one is insolvent. It can constitute fraud in the part of the business. Likewise, it is to be noted that directors have the responsibility to safeguard the interest of the corporate creditors. Operating under a state of insolvency violates this and thus is able to hold the directors and officers liable up to their personal assets and properties.

Additionally, it is better to formally and calmly wind up operations. If you do not do so, disgruntled creditors can file a petition in court where an order enforces a forced and compulsory liquidation. Under this, the business loses the power to appoint a liquidator and it also crumbles whatever remaining image the company has.

But is a creditors’ voluntary liquidation the best option for distressed companies? It depends. There are indeed other business recovery options and it is advisable to talk to an industry professional, consultant and advisor first before making any abrupt decisions.

Members Versus Creditors Voluntary Liquidation

When it’s time to put company operations to an end, it is best to undergo voluntary liquidations other than be forced to do so under court order. Such action and decision has been duly approved by the directors and the shareholders thereby giving their full consent to wind down operations. There are essentially two types to this: members’ voluntary liquidation and creditors’ voluntary liquidation which we will both explain an differentiate as we go along.

creditor-meetingFirst off, the MEMBER’S VOLUNTARY LIQUIDATION happens when a solvent firm, meaning they are capable of paying their debts as they mature, passes a shareholders’ resolution to shut down operations and appoint a liquidator to perform the liquidation procedures.

There are a number of reasons why a solvent company would not wish to continue doing business. Below are a few of them:

  1. An important employee, director, officer or member of the organization leaves his office causing great and catastrophic consequences at present and/or in the future to the entity.
  2. No one wants to succeed the family business leaving it with no heir to run it.
  3. The life of the business has reached its end as market changes have caused a material shift affecting consumer preferences and ultimately sales and profits.

Because the company here is deemed capable of fulfilling its liabilities and obligations, it necessitates a sworn declaration of solvency. Such statement states that the entity and its directors have carefully studied their financial reports to ascertain their capability to meet their responsibilities. It is a legal offense and crime under law to perform this action if they are proven to be under a state of insolvency.

The CREDITORS’ VOLUNTARY LIQUIDATION on the other hand happens when an insolvent company willingly winds down because its remaining assets cannot anymore meet their present and future obligations. This often occurs when the company after perusal of its finances realizes that there is no other way to recover the losses and it is best to close now than prolong the agony, suffer more losses and face a possible compulsory liquidation.

Like the previous one, the assets are sold by the appointed liquidator whose proceeds will then be distributed in order of priority. One must remember that creditors are always prioritized before the shareholders and owners.

To put it simply, the former is performed by a solvent company while the latter by an insolvent one.

What You Should Remember About Liquidations

Liquidations have been described in law as the series of procedures wherein a company or part of it is put to a close and the assets related to its operations are sold to which funds are distributed to creditors and if there are any left to the shareholder.

liquidate businessIn business it is the process of taking tangible corporate assets and turning them to cash often by selling them off often in order to pay a debt and sometimes for owner and shareholder gain. Such is done voluntarily and involuntarily. In the former, the directors themselves file for it while the latter is often forced by court through action of creditors.

The process for liquidations is a long one and should be taken seriously and carefully which often necessitates business owners to hire consultants, advisers and legal personnel to assist them in all matters regarding the action. To shed some light on the procedures involved below are some brief discussions about them.

  1. A meeting between the board of directors is held where a proposal regarding the move is brought up in the case of voluntary liquidations. For a compulsory one, a court order is necessary.
  2. When a mutual and joint decision or a quorum is reached and the company’s insolvency has been ascertained or the court has already passed an order, a liquidator will be appointed.
  3. The liquidator is an individual assigned to sell all assets of the business and use his or her assigned powers with due care and diligence in the best interest of all parties involved.
  4. Distribution is then performed in the following order:
    1. Payment for the expenses involving the liquidation including legal and professional fees.
    2. Salaries and wages of all company employees should be paid off.
    3. Next, the funds are then distributed to all creditors. If the asset sales are not enough then such will be distributed proportionately to distribute the losses fairly to all parties.
    4. If there is any left, it will then be distributed to the corporate shareholders.
  5. When such matters have been accomplished, a business is considered dissolved.

Now liquidation is a very painful thing to everyone concerned with the business from stockholders to founders to officers to employees and even to business suppliers and partners. However, when there comes a time when it is needed, it is best to do have one done so that you can move on with your life.

What You Should Know About Bankruptcy

“You are going bankrupt.” This is a much dreaded situation where you would wish to magically go away. Who would want to find themselves stuck in one anyway? Now do you really understand what bankruptcy is? To make things clearer and enlighten your knowledge better we have here some facts and information to add up and amplify your knowledge.

bankruptcyWhen a company is overwhelmed with liabilities it has many options and line of actions to choose from one of which is to file for bankruptcy. Of course no one would want that as everyone would like to salvage and revive what can still be saved and from there and bring back the business up the ladder.

Before one files for bankruptcy it is important that one knows the consequences well, if not, hiring experts form that you will seek advice from will be the best action to take. To give you some useful details, we asked the experts over at www.aabrs.com for information that you and your company should know about:

  • Properties and assets will be frozen. – This is to avoid businesses from selling off their corporate assets and distributing the funds amongst its shareholders instead of using them to pay creditors. The same goes for bank accounts. Technically even if all the said properties are sold they may not be enough to pay off all outstanding debts in which case they will be distributed proportionately to creditors.
  • It is not an easy escape from your liabilities. – When you declare yourself bankrupt it does not mean that things are done once creditors are paid. When you do so you will be recorded in the credit bureau which means that it may be hard (but not impossible) for you to obtain credit and loans not until you have been removed from the list and you have already established yourself back up again.
  • It is not the only option you have. – If you are in a tight financial struggle do know that it is not your sole option there is. Find an expert who can acquaint you with them and help you assess the pros and cons of every option and determine from which you will benefit best.
  • It can be costly. – First off you would need to have consultants, lawyers and experts with you. It has to be ascertained that filing for one is indeed the best and only option that will work for your company.

A guide on pre-pack administration

With the economy today getting very unpredictable, a lot of companies are struggling financially. Some have debts and liabilities more than their income and assets. Some companies goes into mergers in order to save the business while some companies are dissolved. Others go into pre-pack administration.

What is pre-pack administration?

This is when a company’s assets are pre-sold to a buyer, usually another company or some of the directors of the insolvent company in the efforts to save the name of the company and retain suppliers and loyal customers. An administrator is then appointed to oversee a seamless transition. The main goal of this is to be able to distribute payment to the creditors.

pre-pack administrationBenefits

The advantage of this is that the company directors are given a chance to buy the assets before the business gets dissolves. This means that the directors will have to put out personal funds to purchase the assets.

Another advantage is that the company can continue to do business under new management, thereby making its loyal customers happy.

It also gives the business a chance to earn more value to its assets. If in the end, the company will get liquidated then the assets will be realized to their maximum market value. And in turn, the creditors will get paid accordingly.

No jobs will be lost, the existing employees of the company can be absorbed by the new management or the  “newco”. Although in some cases, some positions might be lost.

The operations of the business can continue to run. So the potential to earn income is still there.

Prerequisites for pre-pack administration

You need to hire an insolvency practitioner and prove that pre-pack administration is the best solution for your business. You need to prove that this is the best way in order for the company to pay its creditors.

After further investigation, your company is insolvent and that there is no way for recovery from debt. And the company has defaulted a debt of more than £750 and has failed to settle it after a statutory payment demand from the creditor.

If you think that your company falls in the these categories, then waste no time and consult a licensed insolvency practitioner so you can discuss the future of your company. Time is of the essence here. The earlier you act, the better chance there is to pay your debts and save your business. So act now!

What goes on in a Creditors’ Voluntary Liquidation?

Do you have a business that is on the verge of closing down? Are you in a situation where you are already full of debts and the income from the business is not enough to pay for the debts incurred? Then you might as well consider closing down your business and opt for creditors’ voluntary liquidation or CVL. This allows the owners or directors of the company to hold a meeting with the shareholders and creditors. The group will have to decide together and assess the situation. Once they have decided that the business is insolvent, with which a CVL is advised.

How Creditors’ Voluntary Liquidation works?

First the company hires an insolvency specialist who will give an in depth assessment of the company’s current financial situation. The assets and liabilities will be analysed and the accounting books will be reviewed to know the depth of the financial difficulty that the company is in. Once the directors have decided to close up the business, a meeting with the shareholders and creditors will take place. A chairman of the meeting will be appointed as well as an insolvency practitioner (IP) who will liquidate the assets.

The directors will need to provide a comprehensive list of assets and liabilities and open their books to the insolvency practitioner. A report will then be made which will be presented during the shareholders’ meeting, in order for everyone to see the whole picture. A valuer will also be hired in order to get the best value of the assets.

liquidationAfter the shareholders’ meeting, the creditors meeting will take place where they will vote for the liquidators who the directors nominated. Whoever will have the most votes will be handed over the task to liquidate the assets. The purpose of this is to be able to pay the creditors with the sale from the assets. Whatever is left will then be distributed to the shareholders. Once everything has been done, three months after the last meeting of the shareholders and creditors the company is then considered as dissolved.

It is a wretched process but it is also the best way for a company to pay off its debts and save the owners from personal financial trouble. In some cases, there is still money left for the owners to reinvest in another company and start from scratch. Hopefully this time, will be smart enough to balance the books before it goes into a financial mayhem.