Cost of a Pre Pack

There are various costs associated with implementing a Pre Pack. A new company must be set up. The assets of the old company must be valued and purchased. The old must then be liquidated.

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Pre Pack Set Up costs

The first cost associated with the Pre Pack process is the setting up a new company. Generally this will be minimal. However it will have to be borne by the director’s or shareholders.

The company will require a bank account and often need to be VAT registered. This will require time to organise. If the directors of the new company do not want to do it themselves they will have to pay a service provider to help them.

Valuation and Sale & Purchase Agreement

In order to get an accurate valuation of the old company’s assets an independent valuation must be carried out. If the old company is unable to afford to pay for this the cost will have to be borne by the directors.

Once the company’s assets have been valued a Sale and Purchase agreement must be drawn up. Normally this will be undertaken by a a solicitor or an Insolvency Practitioner appointed by the old company’s directors.

The cost of these activities will vary depending on the nature and size of the business. However for a small company these costs can be as little as £250 + VAT.

Asset valuations must be carried out by a reputable independent valuer. The creditors may require proof of this.

Funding the Purchase of old Company Assets

The amount that will have to be paid for the old company assets will depend on the independent valuation. This is based on the nature of the company’s business and so will differ from firm to firm.

Payment should be made from the new company’s bank account. Ideally the necessary funds will be made available from the new company directors.

If the amount required is not readily available the new company may be able to negotiate an agreement to pay in instalments from new trading revenues.

If funds are limited it might be possible for the new business to borrow it against the security of the assets it is purchasing.

The Cost of Liquidating the old Company

The final cost of a Pre Pack is the closure of the old company. To achieve this the directors will have to appoint an Insolvency Practitioner (IP). The IP will prepare a Statement of Affairs for the old company and call a creditors meeting to appoint the liquidator.

If there is no objection from any of the creditors the IP appointed by the directors will be become the liquidator. The liquidator’s fee will normally start at £2000 + VAT for a small company with no employees.

The Statement of Affairs fee can be paid from the funds collected by the liquidator from the sale of the company’s assets. However if insufficient funds are available from this source the directors will have to pay the remaining balance.

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