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Pre-Pack Liquidation
A pre-pack liquidation is the favoured way of closing a non-profitable company that may be finding itself in financial difficulties, but transferring the profitable part of the business and if needed, its employees to a separate legal entity. This also protects the directors from accusations of wrongful trading.
From the government’s perspective, it is much more favourable to dispose of a failing entity and preserve the profitable business via a pre-pack liquidation, than to let a perfectly viable business fail completely. It allows you to keep your employees in work and keep your clients/customers. The company’s assets are realised and valuations undertaken and the purchaser (debt free company) needs to demonstrate proof of funds or finance in place.
The failing company’s creditors are treated much the same as they would be in a creditors voluntary liquidation and would be invited to the meeting of creditors. Assets not involved in the pre-pack sale such as book debts are realised and proceeds together with money gained from the sale of the business, fund the cost of the pre-pack liquidation and any excess becomes available to creditors.
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