Pre-packs can offer you wide variety of benefits

My business has an acute cash-flow problem and I believe it is very close to folding. We've got a great management team, a good business proposition with plenty of well-established goodwill, all of which I'd like to preserve. But we're being clobbered by a double-whammy of the downturn and public sector cutbacks following the spending review.

I am very concerned as I want to safeguard what there is. I've heard a lot of talk about pre-pack administrations. Without going into too much detail what are my options?

As the recovery gathers momentum, many under-pressure businesses like yours will be keen to ease their position. The sooner problems are identified and tackled, the sooner a solution can be found.

Among the options available are financial restructuring, company voluntary arrangements (CVAs), or other arrangements, including the hugely controversial pre-packs.

Pre-packs tend to come under fire simply because the process of creating one is often driven by the existing owner or management teams, which have a clear and vested interest in retaining control of the business.

However, they have already worked for dozens of well-known high street names, including MFI, Karen Millen, Oasis, the Laurel Pub Company and Cobra Beer. All were resurrected under pre-pack deals completed within the past few years.

Pre-packs are also a very misunderstood insolvency tool, with the benefits often lost amid concerns over the impact on unsecured creditors. It's easy to see why they are controversial.

Whatever the benefits, the fact that the management of a failing business can get together and "quietly" buy back a failed business is widely regarded an affront to fairness and transparency.

When a deal benefits those who were directly involved in the failed business, to the detriment to those who were excluded, it's not hard to see some parties may feel aggrieved. The lack of transparency in pre-packs can hide conflicts of interest.

Pre-packs can save jobs, win creditors a half-decent return, breathe life into a jaded brand and transform inefficient companies into lean and mean operations. They may also offer a more realistic chance of saving a struggling business than the CVA, where a business reaches a deal with its creditors to pay off its debts over a period of time. CVAs are not suitable in every case and many fail as companies find they cannot maintain payments agreed under the CVA, as well as servicing other ongoing liabilities.

For more information on pre-packs or any other insolvency issues, please contact Sean Moran on sean.moran@harveyingram.com or call 0116 257 4410.