Pre-pack Administration gone wrong – Commercial Debt Recovery News

A recent story on the North East news website The Journal highlighted an all too familiar occurrence, notably a business failure from a UK small to medium enterprise. The twist to this tail however was the failure of securing a Pre-pack Administration to limit the resultant damage placed at the hands of the firms’ bankers.

Brian Moore ran the laundry company Smart and Kleen at the Whitehouse Enterprise Centre in Benwell, Newcastle but the company was forced to close down in December 2009 with the loss of 16 jobs after its bankers demanded £9,000 when the firm was already in difficulties.

Problems began when the firm experienced money troubles during the gripping recession and the firm’s finance company Close Invoice Finance began to reduce its funding facility by 1% per week due to the general economic situation.

Invoice Finance works by advancing money secured on invoices so as it seems in Smart and Kleen’s case, if the sales invoices were reducing, so to does the facility.

With widening cash flow problems, Mr Moore applied for Pre-pack administration in a move to re-structure the firm’s debts.

A Pre-pack administration involves an existing director buying up the firm’s assets just after it has gone into administration and starting a new company in order to keep the business going.  Mr Moore decided this was the best option to allow Smart and Kleen to carry on trading and protect the jobs of the 16 staff. He planned to buy the assets for £21,000 by securing new funding and creating a new company after putting the firm into the hands of administrators to ensure all his debts were paid.

On the day the refinancing deal was to complete, the firm’s finance provider (Close Invoice Finance) levied a £9000 termination fee, effectively preventing the Pre-pack to commence, which resulted in the loss of all jobs and with it, the chance of the firm’s debts being settled.

The sad thing is that this is not an isolated incident and every day more UK businesses face closure resulting in loss of jobs, and the knock-on impact to those firm’s suppliers. Cash flow problems have always been the biggest killer of businesses and in a recession, the likelihood of firms entering into difficulties only increases.

The question is not about whether any of your customers may go out of business, but which ones, when and with what impact to you?

If you are worried about surviving a business closure of one or more of your customers speak to CCDR today as there are measures you can take to limit your exposure.

By taking advantage of regular business reports and by assisting businesses manage their credit control function we can reduce debtor days before they increase bad debt exposure as a preventative measure. For those firms currently facing the reality of possible bad debts, the quicker our first class debt recovery services are put in place, the better the chances of recovering your commercial debt become.

CCDR (Corporate Credit Debt Recovery Ltd) is a leading UK Debt Recovery specialist with international reach and a client base of SME’s and multinational organisations. Our services include:  Debt Recovery, Debt Mediation & Dispute Resolution, Business Reports and Debtor Tracing, Outsourced Credit Control and Corporate Legal Services.

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