One of the options to avoid liquidation if your company is in financial trouble is Pre Pack Administration or Phoenixing. Using this process you rescue the business by setting up a new phoenix company which trades in place of the old without the burden of debt.
Pre-pack administration (often known as Phoenixing) allows a new limited company to be set up which purchases the assets of the old business. The new company is then free to trade in place of the old without having to repay the old company’s debt.
A number of people criticise Phoenixing as being a dubious ploy to dodge your debts. However, where a business is failing, creditors are unlikely to ever recover much of the debt owed. A phoenix operation gives an opportunity for ongoing trade with suppliers and customers, and the retention of employees whom would otherwise face redundancy.
In many circumstances, the phoenix process should be considered as a very real option for business rescue.
Does the business have a real future?
The directors of the company must believe the new company can survive and grow without the debt burden that was dragging down the old business. Investment will be required as the new phoenix company must be funded to allow it to purchase the assets of the old business.
If funds can be made available to build a new business for the future rather than staving off the demise of the old by repaying some of the debt, phoenixing may be appropriate.
Current premises are no longer appropriate
As phoenixing involves starting a new company, this company will not be bound to the existing leases or HP agreements of the old company This means that leases or equipment which are no longer required can be left behind.
Of course where the new company wishes to remain in the premises of the old, then new terms may be negotiated with a landlord. However the outcome of such negotiations will largely depend on the availability of alternative accommodation and the ease of which the business can be moved into different premises.
There are some circumstances when phoenixing may not be appropriate:
Some employees are no longer required
If you believe that you have overcapacity of employment or are employing the wrong type of staff, it is important to understand that pre-pack administration will not automatically enable you to remove staff from the business.
European employment law (TUPE) makes it clear that employees move to the new company with the same terms of employment and continuity of service if a business purchases another. As such, if any employees are unfairly treated as a result of the phoenix process, they may have ground to claim against the new business for unfair dismissal.
I have a winding up petition
Having a winding up petition is a show stopper for the pre pack administration process. This is because once a winding up has begun, none of the company’s assets can be sold before a liquidator is appointed at a creditor’s meeting.
If you believe that your business is failing, pre-pack administration is an excellent solution which you should consider to help you turn the company around. However, you must act as soon as possible and get appropriate specialist advice. The more time that passes, the more likely that the company’s creditors will start to take action. If this happens, particularly in the case of winding up proceedings, your options will certainly be diminished, although there are still other solutions that may be usable.
—–
Why not talk to us about how this solution could help your financial troubles, more details at http://coopermatthews.com/phoenixing.html
Derek Cooper is Managing Director of Cooper Matthews Limited and a member of the Turnaround Management Association UK.
Cooper Matthews specialise in Business Recovery Services Advice providing practical insolvency advice for businesses with financial problems and to Directors with Personal Financial troubles. They have significant experience in working with small to medium sized businesses.
There are no posts related to Business Turnaround - The Right Time to Use Pre Pack Administration .
Leave a Reply