Ask the Experts – March 2012

Q: I am a company director and I’m considering putting the business into administration and then immediately purchasing its business and assets under a pre-pack transaction. What are the legal issues for me and my co-directors?

A: Sonio Singh – partner in the Corporate Department says… Pre-pack purchases by the management team of a company are usually advantageous in ensuring a speedy transfer of a business and can minimise the loss of supplier/customer confidence often caused by insolvency proceedings. Pre-packs can also save jobs. However, given the potential abuses of pre-packs and their increasing regulation, I would recommend that you consider a number of issues. Firstly, directors must consider their statutory duties under the Companies Act 2006. The directors are also required to provide detailed information to the Administrator regarding the business of the company so a valid and proper assessment of its business and assets can be made. The directors must ascertain whether a pre-pack is appropriate by considering the creditors of the company and it is extremely important to conduct as much informal due diligence as possible.

The management team should also ensure that (as far as possible) all wages of the employees are paid up to date and all consultations under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) have taken place. As well as claims for lack of consultation, employees who are dismissed in contemplation of a pre-pack can claim damages from the purchasing company.

There are several other key factors to consider so always consult a commercial lawyer before proceeding.

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