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.
More 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.