Insolvency

What are the pros and cons of pre-packs?

This is a difficult question to answer because every company is different. A pre-pack will work best when there is a viable underlying business and that a formal appointment (liquidation or voluntary administration) will not produce an optimal outcome.
Pre-packs, if done properly, can have a range of pros, because they can allow an insolvent company to:

  • Restructure its operations
  • Give creditors a right of review through liquidation or voluntary administration of Oldco
  • Decide its own fate (rather than leaving it up to creditors)
  • Avoid a firesale of assets (which may occur in a voluntary administration or liquidation)
  • Retain its goodwill

However, pre-packs also have a range of potential cons:

  • Shareholders may need to advance fresh funds to buy the company’s assets
  • Directors may be suspected/accused of phoenix activity
  • The company’s reputation may be damaged
  • The process may not deal with underlying financial problems with the business