Phoenixing helps the new arise from ashes of failing business

In times of recession, businesses can face huge problems and challenges. Even in prosperous years businesses can experience teething problems and some of the biggest companies, even household names, are not immune from financial difficulties.

A company faced with the looming prospect of insolvency, whereby liabilities exceed assets, or where they experience cash flow problems unable to pay debts by the due date, may need help. Company debt rescue services assist ailing businesses avoid insolvency and become prosperous.

There are several types of such debt rescue services but normally as a troubled business you will try and secure more financing from banks or investors. Unfortunately in times of economic downturn such additional funding may be hard to come by, particularly if the business is already in financial difficulty.

If everyone is tightening their belt and more money is unavailable, one type of company debt rescue plan available is pre-pack administration. Colloquially known as phoenixing or pre-packing, this type of debt rescue occurs when directors of an insolvent company start a new company. Instead of pumping new resources into the new business, the directors buy the assets of the old redundant business using the same funds they had to set up the old company. The new phoenix company is essentially a new company formed from any value in the old company.

After the valuable viable parts of the ailing company have been transferred, the new company can start trading freely without the burden of the failed company’s debts. The old company is usually liquidated together with its debts and liabilities. The new company can effectively trade with a clean sheet.

This form of company debt rescue is normally suitable for businesses where the company directors believe the company would be operationally viable if it could only shed its old debts and liabilities.

At Cooper Matthews, we can offer advice on the best form of company debt rescue for you.

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