Problems of liquidating a company with pre-pack administration
You have probably heard about rescuing a business from bankruptcy using a pre-pack liquidation process. This method is mostly used in cases where the business has an unfavorable lease agreement or a legacy debt. This method allows the retention of jobs as well as, flow of customers for the new company. Despite this, the method has some disadvantages such as the directors of the older company failing to raise enough funds to purchase the assets of the older company. For this arrangement to be legal, the pre pack administration has to value all the company’s assets according to the market value. This amount can be very substantial especially if the company deals in production. This coupled with the goodwill can make the directors fail to raise the amount. In addition, today’s lending environment makes it hard to access the necessary funds. Traditional bank loans are out of the question while a re-mortgage of the potential investor’s property will require a lot of convincing to the financial institutions. Apart from the cash problems, the new company will be forced to retain the old company’s employees, which can prove to be a burden.