When to use Pre Pack Liquidation

Pre Pack Liquidation can be considered when a company is insolvent – in a position where it is unable to pay its debts which are due – and is not able to make any ongoing payments towards its creditors. However the directors believe that if the company was free of its debts it would be able to grow and become profitable.

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The company directors or shareholders may well have access to external funds. However they feel these would be better invested in a new company without debt where they can be focused on growth rather than used to try and pay the debts of the old company.

Pre Pack Liquidation and Employees

Pre Pack Liquidation¬†cannot be used as a method of restructuring a company’s employees via the back door. As well as buying the assets of the old company, the new business also has a legal obligation under TUPE (Transfer of Undertakings – Protection of Employment) to take on the previous employees under their same employment terms and conditions.

Given that where small or medium sized companies are concerned, the old company will normally be liquidated after its assets have been sold, the directors need to be aware that they will be responsible for repaying any overdrawn director’s current account or personal guarantees given. Where there are no funds to achieve this the option of using a Pre-Pack solution would have to be considered carefully.

More Pre Pack Information

Only a brief overview of the Pre Pack solution is given here. For more information see one of our dedicated websites:

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