Pre-Pack Liquidation

As discussed in the pre pack administration section, pre pack liquidation and pre pack administration essentially achieve the same result using a different mechanism.

In a pre pack liquidation, a new company would be formed and the assets of the old company would be transferred to the new company via the mechanism of Creditors Voluntary Liquidation. An Administration tends to be more expensive than a Liquidation and therefore an Insolvency Practitioner must justify why he has decided to put a Company in Administration instead of Liquidation. As such most companies are placed into Liquidation and this is likely to apply to your company if some of the following apply (although each case is always different and treated on its individual merits):-

• The assets of the company are less than £10,000 in value
• There is no immediate threat from the Landlord or bailiffs
• There is no immediate threat from a pending Winding-Up Petition
• There is no immediate time pressure (within two weeks)
• There is a requirement to do a pre-appointment sale without some of the concerns that SIP 16 brings. SIP 16 only applies in an Administration, not a Liquidation.

Each case is unique, however the steps taken in a pre pack liquidation will roughly follow the below steps:-

1. Company Overview
An adviser will assess the current financial situation of the Company, clarify what the Directors wish to achieve from the pre pack process and specifically identify any time critical events.

2. Technical Expertise
You will be advised regarding any insolvency legislation that may be relevant regarding the pre pack liquidation. For instance, transferring employees and re-use of a company name.

3. Instruct Valuer/Agent
Depending on the asset value, a valuer would be instructed. However, often when the assets are worth less than say £10,000 there is little commercial benefit and this stage can be skipped. A valuer that we know and trust (and that the eventual Insolvency Practitioner will accept) will be instructed to value the assets. This will indicate to the Directors the price that they will need to pay in order to transfer the assets from the Old Company to the New Company. The valuer has to protect his own interests in case the value is challenged by a Creditor. However, due to the volume of work that we pass to them we usually carry a lot of weight in any negotiation process.

4. Arrange Funding
If required we will use our extensive network of lenders to put funding in place prior to the instruction of an Insolvency Practitioner. Alternatively we will have an off the record discussion with a commercially aware Insolvency Practitioner to see if they would accept payment on deferred consideration (e.g. payment over 10 months) on the basis that we appointed them to act as Liquidator.

5. Sale Agreement
Informally liaise with an Insolvency Practitioner of our choice to put a sale agreement together. If the deal warrants it, we will recommend a solicitor to represent you during this process. Often in a Liquidation, it is not required to have a sale agreement and a simple invoice transaction will suffice.

6. Instruct Insolvency Practitioner
An Insolvency Practitioner would be instructed to convene a Meeting of Creditors where the Liquidator would be formally appointed. The Insolvency Practitioner will write to all Creditors of the Company at this stage.

7. Members Meeting
The Shareholders hold a Members Meeting 15 minutes before the Creditors Meeting in order to place the Company into Liquidation. The shareholders can either attend in person or by proxy.

8. Creditors Meeting
As the name suggests Creditors are invited to attend the Creditors Meeting along with the proposed Liquidator and at least one of the Directors. The Director presents a report on the Company and Creditors are invited to ask questions. Finance7 will always represent a Director at the Creditors meeting and answer any tricky questions on the Directors behalf.

9. Post-Appointment Advice
The Insolvency Practitioner will require you to complete a Directors Questionnaire which will form the basis of the Directors Disqualification Report (which must be sent to the Directors Disqualification Department in all insolvency cases). We will assist you with this in order to minimise the chances of you becoming disqualified from being a director in the future or in some instances legal or criminal proceedings being commenced. Due to the expertise of our advice Finance7 has never experienced a Director that instructed us being disqualified. Furthermore, Finance7 will negotiate on behalf of Directors should they have any personal guarantees in place, you may be surprised at the amount we can persuade a lender to willingly write off.

It may not seem straightforward, however I assure you that with our expert guidance we will make the Pre Pack Liquidation process seamless and straightforward.