Ive just received a loan offer through the post;

Apparently, I can borrow between 50 to 800

If I borrow 300 I can pay it back at 10.50per week the total I would pay back is 546

However, the typical interest rate is 272.4%

Sounds like a loan shark doesnt it, but its not Its an offer from Vanquis Bank aimed at people desperate for money for Christmas presents And how convenient that itll take 12months to pay back Just in time for another loan for next Christmas

If this isnt legalised loan sharking I dont know what is

If your Company is in serious debt, there is a powerful, legal way of solving your problems that would result in selling your business on to a third party, which can be a totally new Company a newco or to the existing directors.

The name for this solution is pre pack administration.

The steps involved in a pre-pack administration are as follows.

Step 1:

Due to the poor financial health of your Company you seek advice from insolvency practitioners or even turnaround experts. It is possible that you are receiving threats or CCJs or statutory demands from your landlord, creditors or HMRC (for PAYE and VAT) and your bank. You, as directors, should be worried about wrongful trading (trading insolvently) and therefore becoming personally liable for your Companys debts.

The advice you receive from the insolvency practitioners / turnaround experts will be thorough and a full report will be prepared for the Directors (and possibly for the bank). All other Corporate debt solutions will have been considered and discussed in detail including company voluntary arrangements (CVAs), sale of the business on the open market, refinancing, administration and creditors voluntary liquidation.

If pre-pack administration is the best option, once all options have been considered, this decision will be made by the directors. A board meeting will be held and a resolution passed stating the companys board will consider the option in greater detail.

The resolution should include the appointment of formal advisors, either insolvency practitioners, turnaround practitioners or Accountants to act as advisors to the board.

Step 2:

If the plan is to sell the business (not the company) to a newco then a business plan for the newco must be drawn up. We recommend that this includes detailed profit and loss forecasts, cashflow forecasts and balance sheet forecasts. This will give an indication of working capital requirements. The proposed administrator will require this as evidence that the new company can be viable.

If the plan is to sell to an existing trading company, the IP will require copies of management information and accounts from that buyer. Again this is necessary to ensure the acquiror is viable and can afford any payments for the assets being acquired.

A qualified accountant should be contracted to provide this forecast pack in my view. My trained accountants and specialist forecasters can provide such a service.

Step 3: Compliance issues.

Under insolvency practitioners guidelines (known as SIPS) the IP must market the business. Often this requires sending sales memos to a database of potential buyers, or the IP may place an advert on his website and/or a local or national newspaper. If he gets no interest or no indication of interest he can then sell to the newco or third party. If there is a lot of interest and several offers, beware your business could fall into a competitors hands! You may still be able to buy the business back, but the outcome is not under your control

He or she will also have to get formal valuations of the assets, intellectual property and or goodwill of the insolvent company by RICS qualified surveyors. Generally any offer needs to be commensurate with such valuations.

At this stage if you and your colleagues are planning to buy the business you must be careful with regards to your personal position. As directors of the dying company you have a fiduciary duty of care to the companys creditors.

Starting newco can put you at risk of conflict of interest. Its likely that you will need separate legal advice on both companies. Best to talk to lawyers with insolvency and pre-pack experience.

The IP will take advice from his lawyers as to compliance and risk. He may require this advice to be paid for along with his disbursements. Strictly speaking he cannot charge time costs in advance for the pre-pack work but he will charge for consultancy and fees.

WARNINGS?

Beware will your clients contracts or BANK allow you to pre-pack? (The current stand point of several clearing banks is no they wont support pre packing to the incumbent directors/shareholders).

Will your landlord(s) allow a new company to occupy their property? Are your suppliers prepared to supply a newco? Will your creditors be angry about this approach? Some readers may have seen negative media coverage of pre-packs is rising sharply, almost in line with the economy shrinking. In future we see many more people attacking pre-packs, especially creditors and the media.

Step 4: Raising finance

You will need finance to fund the acquisition of the assets and business. There are many specialist lenders who can provide: factoring, asset based lending, loans and bank facilities. Some venture capital companies or angels may help fund the pre-pack as part of a buy and build strategy we have a number of contacts that can help with this.

Financing a pre-pack in 2009 is likely to be very difficult and will probably require personal guarantees from the directors for SMEs. Larger companies may find that the private equity and venture capital buyer, removes the directors as part of the pre-pack conditions.

Once again the funders will require a detailed plan supported by forecasts, they will want to test the valuations, the possibility of making and funding a loss and how their security needs will be met. So its vital to get these built. Call us if you need that done.

Step 5

Assuming that you have raised the finance, the proposed administrator has satisfied his compliance requirements and the board of newco believe they can fund the acquisition, then its all systems go.

A contract is likely to be drawn up that appoints the proposed administrator formally. He will then initiate the pre-pack administration by contacting any floating charge holders like banks or lenders with security. If they have no objections (and often they are involved in funding newco) then he can proceed.

Beware some banks will NOT allow a pre-pack to a related party. RBS, HBOS and HSBC for example will not generally countenance a phoenix with/to directors /members of the failed company. So it may be necessary to take out the bank first.

Assuming all is approved then the administrator makes an application to Court stating his proposals. Almost immediately after that the business is sold to a newco or third party.

This can be done on a Friday night and by Monday the business is trading virtually uninterrupted. Having bought the company name, the oldco see its name changed to something else, like Your Company (Realisations) Ltd.

If you think that your Company can be saved utilising pre pack administration, give us a call on 08000 842 844 now to discuss it further.