How to restart your business – phoenix company and pre-packs

Business restart

If your business is facing insolvency, then you may be asking yourself “how do I restart my business?”.

The business restart options will depend upon your trading style.  If you’re operating as a sole trader or unincorporated partnership, then you can get a picture of your formal insolvency option in the sole trader / partnership rescue options article.

Likewise, if you are the director of a limited company then you will be able get a picture of your formal options in the Limited Company options section of our Business Rescue and Company Insolvency Options article.

It is worth considering that business restart may be as simple as a refresh and restructure of the existing business.  You will be able to read more about this in the business rescue section.

Company restart

As the Director or Shareholder of a Limited Company you may feel that the insolvency of your existing company will mean the end of your business with your company.

It is worth reflecting at this stage on the fact that a business operates within a company.  It is the company’s ownership of the necessary assets and skills to be able to operate your company that allows it to run.

If those assets were transferred to another company, then that company may be as well placed to operate the same business as the original company was. Hence a company restart.

A business restart when used in conjunction with a either a Company Administration or Creditors Voluntary Liquidation really refers to a transfer of the useful and necessary business assets from the original company to a new company.  The key factor of the new company is that any unwanted assets and liabilities of the original company can be left behind with the old company.

What is a Phoenix Company?

Please read through the ‘Business restart’ and ‘Company restart’ sections above and you can now start to understand what a Phoenix Company is.  A Phoenix Company is simply the company that is put in place to take over the useful and necessary assets of a former insolvent company.

How do I transfer assets to a new company?

Fairly simple, you buy them.

Hearsay that you can pick up those assets for £1 are largely exaggerated.  All assets sold will be subject to an external valuation and factors such a market conditions, rarity of assets etc will affect their value.  Though ultimately the more bespoke the assets are and the more the assets  are worth on the open market will determine what someone is prepared to pay for them!

Some assets not to forget if considering a company restart

Don’t forget that you may need to think about the simple day to day stuff as well as the strategic level assets.  Don’t forget the non-physical assets such as trading name, website domains and content, logo’s or telephone numbers.

What restrictions are there on setting up another company?

We’ve already considered the need to pay a fair price for the assets of the former company.

However, the biggest hurdle is S.216 of the Insolvency Act which refers to the re-use of a former company name or trading style.  In short, it says that Directors who re-use such names may be personally liable for losses of the restart company but may also be subject to fine or imprisonment.

Is there a way around S.216, the re-use of company names provisions?

In short, yes.

The insolvency rules lay out three ways to exempt yourself from these provisions.  The most used and simplest is to purchase the required assets from the appointed Insolvency Practitioner and serve the appropriate notices.

How does a restart differ from a pre-pack?

In short again, it doesn’t.  The pre-pack, short for pre-packaged, refers to an agreement to sell the assets of the former company to a new company.  This agreement is reached prior to the formal insolvency.  Then the deal is completed immediately upon the appointment of the Insolvency Practitioner to the company.

Is a pre-pack deal marketed?

Yes, the nature of a pre-pack deal means that the extent to which the company assets may have been marketed by the original company prior to the involvement of the Insolvency Practitioner will affect the level of marketing that an Insolvency Practitioner will undertake.

A pre-pack deal will not be further marketed once the sale has been completed by the Insolvency Practitioner.

Is a pre-pack ethical?

Different circumstances require different solutions and there are circumstances where the best return to creditors will be achieved through a pre-pack deal, as opposed to a sale after a period marketing by the appointed Insolvency Practitioner.

One factor can make the use of pre-pack administration viable is the cost of running a company under an Administration process. If funds to run a company under Administration are not available the only alternative may be an insolvent liquidation.

Pre-pack administration

The use of an Insolvent Company Administration procedure which includes the pre-packaged sale of the assets of a company.

Pre-pack liquidation

The use of a Creditors Voluntary Liquidation which includes the pre-packaged sale of the assets of a company. The company liquidator, once appointed, will conclude a sale of the company assets.

It is worth recognising that the speed of process for a pre-pack Liquidation is much slower than in a pre-pack Administration.  This is principally due to the notice period required for the Creditors Decision Procedure and Shareholders meeting for a CVL.  

The calling of the Creditors Decision Procedure and Shareholders meeting, along with the notice in the London Gazette, will lead to publicity of the Company Liquidation and as such the concept of a Pre-pack Liquidation

Pre-liquidation sale of company assets

It is sometimes the case that a company liquidator is faced with a situation where the company assets have been sold prior to their appointment as liquidator. 

In this case the liquidator will need to undertake retrospective valuation to establish if the value paid was fair.

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