So, what exactly is pre pack administration? Put simply, it involves selling an insolvent business prior to it being entered in to administration. The buyers of the insolvent company are normally the directors of the actual company that is being sold. They can do this because they are not actually buying their old company as such, because it will be a new legal entity by the time that the sale goes through. It is not necessary for the directors of an insolvent company to tell their creditors that they are going to use the pre pack administration mechanism. When a business enters administration, a company voluntary arrangement or a liquidation process, creditors must be informed and they can vote to reject proposals, which they cannot do with pre pack administration. That is not to say that a business using pre pack administration absolves itself of its responsibilities to its creditors. They must keep detailed records of the proceedings as at a later date they may have to give an explanation as to why pre pack administration was the right solution. Under pre pack administration, the exact details of the sale of the business must be decided upon prior to the business actually being placed in to administration. The administrators are able to conduct the sale of the business almost immediately. Due to the nature of the transaction, and the effect that it will have on the unsecured creditors, it is important that each and every step of this process is fully documented. There is a common perception that pre pack administration allows directors to continue to run a business without being held accountable for debts that they were responsible for. Essentially, it looks like directors are cheating their creditors out of money owed to them, whilst they continue to do business as before. That is a simplistic view though, and a framework is in place to ensure that the system of pre pack administration is not abused. Directors not placing the interests of the company above their own are taking a real risk. Directors found to be abusing the system can be taken to for their actions. If you think that pre pack administration is in the best interests of your business, then you should contact a company who specialize in processing them.

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