Business

The Fraud aspects of the Pre-Pack Administration

Despite having helped many businesses to get back on their feet after facing major financial ruin, the pre-pack administration has been labeled fraudulent by many unsecured creditors. The pre-pack administration is a common method of avoiding business bankruptcy. It entails selling off the assets of the old financially crippled business to a new company which is managed by the directors of the old company facing financial jeopardy. This is of course highly advantageous to the company employees and owners as their debts are cancelled upon the successful formation of the new company. However, this method is considered deceitful by the creditors.

The company gets to start up a new business and retain its old assets without paying off their debts. The only hindrance that the company might face is acquiring the VAT deposit required by the HMRC. While the business continues to operate, the creditors have to suffer the losses. This has been debated over and over with a number of people arguing that the business is better in operation. However, the fraudulent aspect of the new business cannot be overlooked as formation of a new company without clearing up previous debts shows unaccountability. The fact that the old directors are the proprietors of the new business also questions of ability of the new company to sustain itself financially.