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If your financial problems have reached the point where you do not see a way out and you feel as though you are drowning in debt, your best way out is through declaring bankruptcy. Filing may well allow you to get your finances back on track
4 Great tips for a successful Phoenix or Pre-PackPhoenixing (or Pre-Pack liquidation) is the process where
assets of a business (and often its name) are bought by a new company. The old
business is then closed through liquidation and the new company starts to trade
without the burden of the old business' debts.
The pre pack process often receives negative press as it can often look as
though a new company can start up as a mirror image of the old and simply leave
the people who are owed money in the lurch. However, the fact often missed by
such arguments is that the original business is already in financial difficulty
and likely to fail thus leaving creditors unpaid anyway. The Phoenix process at
least gives the opportunity to save part of all of a company, preserving jobs
and the potential of trade in the future.
If you are considering using a Pre Pack process to save a failing business,
there are a number of areas that you should consider:
Set up the new company
- Setup the new company well in advance complete with bank account and VAT
registration. Particularly if the directors of the new company are the same as
the old, it is extremely important to register the new company for VAT
immediately. In these circumstances, if HM Revenue and Customs learn that they
will be a creditor of the old business, they will be unlikely to agree VAT
registration for the new without a substantial deposit and restrictive return
arrangements such as calculating and paying returns monthly.
Agree terms of lease with Landlord
- If the new business is likely to want to remain in the same premises as the
old, agreement must be reached with the landlord regarding the transfer of 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.
Arrange to raise the lump sum required to buy the old company assets
- The sum required for this purchase will be dependent on an independent
market valuation and therefore may be higher than the director's expect. 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 as
long as they are unencumbered (wholly owned by the old business).
Consider invoice factoring to support the cash flow of the new
business
- Once the new business is up and running, early cash flow will normally be
of prime importance. Given the bank's current reluctance to lend, methods of
supporting cash flow such as a bank overdraft or credit card may well not be
available. If this is the case, invoice factoring should be considered which
would give immediate access to up to 80% of the value of all new invoices raised
by the new business.
Undertaking a business pre pack liquidation is by no means a recipe to ensure
that the new phoenix business will be a success. The strategy and business
processes of the new company may have to differ significantly from the old
business which will require hard work and tough decisions. However, considering
the areas above will certainly help to avoid some of the pitfalls of the pre
pack process.
Article Tags:
Great Tips, Successful Phoenix, Pack Process, Cash Flow
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