Case Study: Project Diamond - Sale of business through pre-pack administration
Project Diamond was a company that dealt with IT infrastructure which had encountered some cash flow difficulties, such that the director did not want to continue with the business. However, whilst he no longer wanted to be involved with the management of the business, it was felt that there was a viable business if the historic debt could be dealt with. Accordingly, Armstrong Watson were engaged to assist the director in trying to find a sale of the business through a “pre-pack” Administration.
Armstrong Watson marketed the business for sale which resulted in a number of parties expressing an initial interest, following which two parties proceeded to the final stages. During the marketing period, the business continued to trade. As the company used an invoice discounting facility to access cash, Armstrong Watson were able to liaise with the lender to ensure that they were kept abreast of the developments and were able to answer any queries they might have.
Following the deadline for best and final offers, a sale was agreed to a third party, with all employees transferring across to the new company. The director was retained by the purchaser but not in a management role. The main concern around entering an insolvency process was the potential dilution in value of the outstanding book debts and a risk that the secured creditor would not be repaid in full (a liability which had been personally guaranteed by the director). By working with the purchaser and the lender, the majority of the book debts were collected and the customers were retained by the purchaser, with the lender being repaid in full from the proceeds.
