Case Studies for Phoenixing or Pre-packing

This is the practice whereby the directors buy back the assets of an insolvent company from its liquidator. Instead of putting additional resources into an already insolvent company the directors use the same funds to set up a new company and acquire the assets of the old business.

A new business is formed which can have the look and feel of the old company and continue to successfully trade without the burden of the historical debts thus protecting employees and assets such as good will with the current customer base. Creditors of the old business are given a better return than if the company was simply wound up and the opportunity to continue to trade with the new business.

The following case studies give a fuller idea of how Pre Packing can be used to enable a new business to take over the assets of a previous failing business.

Bathroom Accessories manufacturer

Following the loss of the company's major customer and a steady decline in the gross profit margin, arising from costs associated with manufacturing in the UK, the directors were forced to reassess the future of the company.

After reviewing the company's financial position it was established that it would not be able to service its existing liabilities from future trading. However, it was identified that the business could be profitable if it was released from its historic debts. The company went into Administrative Receivership and 2 of the directors of the failed company set up a new limited company as a vehicle to purchase the old business assets from the Administrative Receivers.

The old businesses' assets (including the freehold property from which the company traded) were purchased and key staff were transferred to the new company and trading commenced on a stable footing.

Promotional Merchandise Distributor

In developing the business and the customer base, the company had traded at small losses for most months for a couple of years, this accumulated in an unsustainable level of trade creditors.

Redundancies were made, overheads cut and an informal repayment arrangement was offered to the trade creditors, together with a write down of half of their debt in order to keep the business going. This offer was refused by the creditors, leaving the directors no option but to put the company into liquidation. The directors set up a new company and bought the business and assets from the Liquidator swiftly after their appointment.

Key staff were able to transfer to the new business and ironically it has continued to trade successfully with most of the suppliers that refused to agree a write down of debt in the old company.