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Thursday, 23 June 2011

Pre Pack Administration Reform

In draft proposals to be published this week by the insolvency service all creditors will get 3 days notice of any intention to sell the business to a connected party.

It has been argued before that this is an attempt to reform the system in order to stop the occasional "dodgy deal", or as a PR exercise, that will destroy the rescue culture and put jobs at risk unnecessarily.

The principal aim of administration, as enshrined in the insolvency act, is rescue.  In many instances publication of the fact that the business is in serious difficulty can make a bad situation worse as customers and suppliers pull custom and credit. 

The outcome of this reform, if it goes ahead, will send a clear message to directors of struggling companies that they must take advice early and work with turnaround experts to put a rescue in place before a winding up petition forces their hand.  A CVA is a powerful rescue tool that should not be overlooked.

Take the insolvency test to see if you need to talk to someone.  Sales and profits can be high but you can still be insolvent if you cannot pay your creditors when they fall due or your liabilities are more than your assets.

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