Can someone explain simply to me how this works and how it can be legal please?
I have Googled it in an attempt to understand it but just get inundated with adverts for firms offering it and explanation that don't really tell me much at all.
The last couple of years has been bad for the Haulage industry, and there are so many firms taking up this option.
To the outsider they never stop trading, never change owners and simply 'write off' their debts and carry on as before running up new ones.
Is it really like this?
Pat
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>>To the outsider they never stop trading, never change owners and simply 'write off' their debts and carry on as before running up new ones.
That's about the size of it.
It's an insolvency procedure. On the one hand, the business can close, with possibly little or nothing for the unsecured creditors. On the other, a buyer can be found to keep physical business operating subject to some debts being written off or renegotiated. In a pre-pack, the sale is worked out in advance, typically to a new company run by the same management and trading under the same name. Deals generally have to be done with landlords, who may be owed some rent, and may accept lower rents for a period.
There have been so many of these in retailing. shaking off creditors and customers whose goods haven't been delivered, it doesn't smell good does it?
Last edited by: Manatee on Fri 8 Oct 10 at 07:40
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Thanks Manatee, that's exactly how it seems to be working around here at the moment, and the new 'companies' go on to thrive while the reputable ones still struggle on in an honest manner.
Surely this shouldn't be allowed, how do they get round everything to do it legally?
Pat
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>> how do they get round everything to do it legally?
[place on cynical banker's hat]
When you set up a company, you have limited liability - i.e. if it goes bust then its creditors cannot demand the money from you when you cannot pay the rent/garage bills etc.
So.... the company (OldCo Ltd) goes bust. (Remember, it is illegal for directors to allow a company to continue when they know it is insolvent, therefore they HAVE to put it into administration at that point.) Now, it is in the interests of the creditors of OldCo to have the assets of the company sold for as much as possible - so they get back as much as possible of what they are owed.
Therefore, somebody needs to be found who will buy the business of OldCo. Who better than the former management of OldCo - now owners of NewCo Ltd which is the vehicle they use to make the acquisition. Nobody is likely to pay a better price than the people who know the warts.
So the creditors get the best possible situation. Better still, NewCo needs to continue renting the same properties and using the same garages (remember these are the creditors who lost out when the company went bust), so the creditors also benefit from the ongoing business.
[/cynical banker's hat][place on aggrieved creditors hat]
These devils have gone bust owing me money that I won't ever see again. What's WORSE, they want to continue renting my premises BUT at a lower rent AND there's there risk they'll go bust again. But the alternative is I'd have no tenant at all. What do I do?
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Mapmaker sums it up neatly.
Often this sort of thing is the only way a business can be saved (including jobs), particularly in circumstances and sectors where a normal sale of business process just wouldn't work, as by the time you'd got to the end of it there would be nothing left to sell after (e.g.) competitors had lured all your customers away.
BUT
By its very nature it is particularly open to abuse, by the sort of director who regards paying his creditors as a tiresome obstruction to his ability to line his own pockets, and the sort of insolvency practitioner who places short-term fee income in priority over doing his job properly.
Practitioners doing pre-packs are now supposed to file reports with various parties in each case, explaining in detail why it was a good idea.
But as with all things, it won't stop the rogues and the shysters.
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...Strange, but you did not have any problem paying £10 to DaveTD here:..
Suppose,
A private citizen who has foolishly got himself into debt and is considering personal bankruptcy is very different to a business going into administration.
But then I think you know that.
You may think both are equally reprehensible, but they are not strictly comparable.
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You miss the point Suppose, what I choose to do with my money is my business, and absolutely nothing to do with you.
It is also in extremely bad taste to bring it up again.
How other firms seem to manage to do this more than once, concerns me.
Pat
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>> You miss the point Suppose, what I choose to do with my money is my
>> business, and absolutely nothing to do with you.
>>
So how a business runs it business is your business..
>> It is also in extremely bad taste to bring it up again.
>>
Hit a raw, sensitive nerve there! Why is it in bad taste? I suppose because you don't like it. But I do!
>> How other firms seem to manage to do this more than once, concerns me.
>>
>> Pat
>>
They do it within the law just as any other bankrupt or near bankrupt business or private person does it. This is how football clubs do it
www.footballeconomy.com/content/why-administration-football-clubs-common
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>>So how a business runs it business is your business..<<
Most definitely, when they may well be asking my business to do their training.
>>Why is it in bad taste? <<
If you really don't know, then I would be wasting my time trying to explain.
>>They do it within the law<<
You seem to defend it very much Suppose, why do you approve of it?
Pat
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...They do it within the law...
As does the personal bankrupt under the Insolvency Act.
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Pre-pack administration - Manatee
