Pre-pack liquidation-Company Rescue

Insolvency

Pre-pack liquidation-Company Rescue

Pre-pack liquidation-Company Rescue

Introduction

Although widely used in the UK, in Ireland prepack liquidations are less common. Irish cases tend to be large companies, but there is no reason why smaller companies cannot avail of the advantages to save the business and employment of many if not all the employees.

What is a pre-pack liquidation?

Briefly, it is where a new company (“NewCo”) is formed to take over the assets of a failing company (“OldCo”) by paying a pre-agreed price for its assets. NewCo trades on and OldCo is liquidated in the normal way.

How is it carried out?

In advance of making the transfer, the assets to be taken over from OldCo are professionally valued by an independent valuer. These assets include the goodwill of a trading business. The employees to be transferred to the new company are identified. The agreed value is paid to OldCo, typically to OldCo’s solicitors for the benefit of the creditors. The liquidator will apply this consideration as required for companies undergoing liquidation.

What needs to be done before commencing such a course of action?

A professional report will be required. This report will include a valuer’s report, consider employment law issues, personal guarantees, the position of lenders, landlords, terms of trade, insurance claims, ongoing litigation and make a comparison to the position where the company simply ceases to trade. In short, it will need to be able to demonstrate that the assets were not sold at an undervalue. It will set out the scale of capitalisation of NewCo.

What are the advantages?

The sale can be completed without material interruption to trading activity thereby preserving value and safeguarding jobs. It can be done with the minimum of fuss offering a better outcome for most parties concerned. In short it offers a fresh start.

What are the disadvantages?

It is not suitable for all cases. NewCo may experience difficulty obtaining credit, personal guarantees in OldCo are not automatically set aside and the conduct of the directors in OldCo is formally examined by the liquidator under the oversight of the ODCE. NewCo will have to be funded independently of OldCo.

How does a pre-pack liquidation compare to examinership?

Prepack liquidations require fewer professionals meaning less costs. The timelines set out in examinership for completion of the process do not apply so it can be done more quickly and without the necessity of court involvement. It is this speed, absence of automatic court involvement and considerably reduced costs that attract interested parties to this more controllable option rather than the slower more costly examinership route.

What can we do for you?

We can meet, carry out a preliminary assessment of suitability and answer company specific questions to enable you to decide if this is an option. There is no charge for this initial meeting.