Circumstances when phoenixing is best for business rescue
Does the business have a real future?
The drive for phoenixing is because there is belief that the company has a future if the debt burden is removed. However, the company must have adequate investment because it will be needed to fund the purchase of the assets of the old company. Therefore, there must be demonstrated evidence that the company’s main undoing is the debt baggage that it is laden with.
It is also very prudent to source for funds to build a new business rather than to stave off the debt of the old company. Instead of repaying the debt previously owed, this money can be very appropriately used for pre pack administration.
Current premises are no longer appropriate
Because pre packaged sale involves the formation of a new company, the company will not be bound to leases and other previous agreements binding on the old company. This just means that equipments or leases which are not required can be dispensed with.
However, if the newly formed company intends to remain in the same location, then new terms may be renegotiated.
Under such circumstances, pre pack administration would be a far more worthwhile venture than other options, say, business bankruptcy.