Can I stop winding up using pre pack administration?

If your company has received a winding up petition you need to take action quickly or the business will be closed. We explore whether pre pack administration can be used to overcome this problem.

A winding up petition is a serious matter. Once in place, it is likely that your company bank account will be frozen. If you do nothing, a winding up order may well be issued by the court and your business will be forced to close.

For this reason, if a winding up order has been received or threatened, you need to act quickly.

Pre pack administration is one of the ways a company can be rescued if it has debts that it is unable to pay. A new company is set up which purchases the assets of the old business. The new company then begins to trade in place of the old without the burden of the historic debt.

Winding up will prevent a pre pack

Unfortunately, if the company's situation has become so bad that a winding up petition has already been issued, the pre pack process cannot be used. This is because transactions undertaken by the company from this point could be overturned by the court. In effect it is unable to sell its assets.

For this reason, an alternative solution must be sort by the Directors.

The first option is to consider a company voluntary arrangement (CVA). This is an agreement with all of the company's creditors to pay a certain amount of the debt owed in a managed way over a fixed period.

Once these payments have been made, any outstanding debt is written off and the company is free to continue to trade on debt free.

CVA overturns winding up

A CVA will only work if the majority of creditors agree to it. However, if the majority do agree, any court action against the company including a winding up petition will be stopped.

Winding up petitions are often launched by HM Revenue and Customs. HMRC are supportive of CVAs so there is often a good chance of overturning the petition using this process.

The alternative to a CVA is actually for the directors to close the company themselves using voluntary liquidation. The advantage of this is that the directors are in far more control of the appointment of the liquidator and the process of closure.

If the directors want to set up a new company and continue to trade in the future, they can always make an offer to buy the assets from the liquidator who the creditors have appointed to act in their best interests.

Winding up is very serious. If your company has received a winding up petition, you need to act swiftly if you want to save it. However, at this stage, it is too late to use pre pack administration.

In order to take advantage of a pre pack, you will need to implement this solution before one of the business' creditors starts the process of winding up. As such, as soon as you believe your company is struggling, insolvent or unable to repay its debts you should take advice from a company insolvency expert.

For more information visit http://coopermatthews.com/business-debt-advice.html

Derek Cooper is Managing Director of Cooper Matthews Limited and a member of the Turnaround Management Association UK.

Cooper Matthews specialise in Company Debt Rescue providing straight forward insolvency advice for business owners with business and personal financial problems. They have significant experience in working with small to medium sized businesses, working with Directors, Sole Traders and Self Employed.

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