Generally, yes, although there can sometimes be problems. Lawyers call the process a ‘pre-pack administration’, and the number of pre-pack administrations has risen sharply in recent years.
First, your company negotiates the sale of its business (or the saleable parts of it), with a possible buyer (which could be a third party, or a new company set up by you and/or your management team) and the proposed administrator of the company. The sale has to be at the best price obtainable. Once the sale agreement and other documents have been agreed, the administrator is appointed, and they sign the agreement.
Benefits are that the business is sold immediately, at a proper price, after an extremely short administration. This can reduce the potential damage to relationships with customers and suppliers that can occur while a company is trading in administration and, therefore, the potential losses to creditors. If the buyer is a company set up by the existing management, their personal contacts may make a pre-pack deal even more attractive.
The speed of the process can also mean jobs are saved, with employees having the right to continue their employment with the buyer company under the TUPE regulations – special rules that protect employees on a transfer of a business from one owner to another.
However, a pre-pack administration can be unattractive to the old company’s creditors, and they may try to stop it. They may feel that the business has not been properly marketed, so that the administrator is not getting the best price obtainable. They may be unhappy because it feels as if the deal has been done behind closed doors and then presented to them as a fait accompli.
The old company’s bankers may also be unhappy. Their concerns can be particularly acute if the buyers are the management of the old company, and many clearing banks will refuse to support a pre-pack administration in those circumstances.
The old company’s landlords may be unhappy with the new company becoming a tenant in its place (whether the new company belongs to the previous management or not), as it has no track record. They may try to withhold consent to the assignment of the lease from the old company to the new company.
Practically, the recession means it is currently difficult to find funding for the acquisition of businesses in any event. A buyer will often need to find specialist lenders or venture capitalists prepared to fund a pre-pack deal – and even then, many funders will require personal guarantees from the directors of small company buyers.
Clearly, a pre-pack administration should only be launched after taking specialist professional advice on whether a pre-pack administration is the best option.