An Easy Guide to do a Phoenix or Pre-Pack

Your company may be in a position where it is failing because it cannot pay its creditors. In addition company agreements such as premises leases are no longer appropriate. If this is the case, you may be considering simply cutting your losses and closing the business. There may well be business ideas and certain elements of the assets that could still be viable. However, if you simply liquidate the company, the assets could well be lost.

A pre pack liquidation (commonly known as the Phoenixing process) allows a new company to be formed which then buys the assets of the old failing business. Employees may be transferred to the new business. The old business is then closed (or liquidated) and proceeds of the sale of assets distributed to the outstanding creditors.

For this process to be successful there are a number of steps that will need to be carried out. The following steps are not necessarily sequential. The correct timing to undertake each will be advised by the insolvency professional working with the company board.

• The board members review the current business situation with a business insolvency professional and agree that a Pre Pack should be undertaken.
  


• A new company is formed complete with bank account and VAT registration ready to buy the assets of the old business. Generally this will be with the help of the business insolvency professional.
  


• An Insolvency Practitioner is introduced to the old company who will instruct a valuer to assess the value of the company's assets.
  


• It is often the case that the new business will want to remain in the same premises so agreement needs to be reached with the landlord to transfer the lease. A landlord may try and renegotiate the terms of the lease for the new business. It is therefore always sensible to have alternative accommodation options if possible so that the threat of vacating the premises can be used as a bargaining tool.
  


• The Insolvency Practitioner agrees to sell the assets, good will (and name if required) to the new business. There may be a deferred payment period if agreed. If finance cannot be made available through a more traditional route such as property equity release or a commercial bank loan, the area of Asset refinancing may be considered. Many asset finance companies will lend against the value of the assets such as plant and machinery to be purchased by the new company.
  


• Employees of the old company are transferred to the new business as required and taking into account TUPE (European law regarding the transfer of undertakings and permanent employment).
  


• The Insolvency Practitioner calls a creditors meeting to report on the old company's outcome to its creditors. The insolvency practitioner is appointed by creditors to liquidate the old business. The creditors will receive a share of any available proceeds from the sale of the old company's assets.
  


• The board of the new company get on with running the business. In order to improve cash flow, invoice factoring may be considered which may give immediate access to up to 80% of the value of all new invoices raised by the new business.
  

Derek Cooper is Managing Director of Cooper Matthews Limited and a member of the Turnaround Management Association UK.

We can be the experts to guide you through the process, find out more at coopermatthews.com/phoenixing.html

Cooper Matthews have significant experience in working with small to medium sized businesses.

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