Pre-Pack Administration

A Pre-Pack Administration is an insolvency process where, with the assistance of an Insolvency Practitioner, the sale of the company’s business and assets is negotiated before the formal appointment of an Administrator.

The Administrator is appointed over the Company and shortly thereafter proceeds to complete the sale.

In a Pre-Pack Administration, the Administrator’s role is to legally facilitate the “pre-arranged” sale. This differs from a more conventional Administration process whereby the Administrator takes control of the business and markets it for sale to potential buyers.

Who will use a Pre-Pack Administration?

Pre-pack Administrations are often used to ‘sell’ a business to existing company directors that want to operate through a new company (or ‘newco’). This often happens when an otherwise viable company is facing serious financial problems and/or creditor threats.

A Pre-Pack Administration allows for the sale of the business as a “going concern” to newco without impacting on the continuity of the business.

It also preserves the value of the assets, including goodwill and book debts, which are normally more difficult to realise in a more conventional Administration process.

A ‘newco’ will need to prove that it has adequate funding in order to buy the company at a fair price. This type of insolvency can be complicated and costly and is therefore only worth pursuing if the business is fundamentally viable.

A Pre-pack Administration can’t be used when a winding-up petition has already been issued against a company.

How does Pre-Pack Administration work?

A Pre-Pack Administration must be carried out by a licensed insolvency practitioner. If your company is insolvent or you are facing mounting creditor pressure, you should speak to an Insolvency Practitioner as soon as possible and they will advise you on the best course of action.

Below is a summary of a typical Pre-Pack Administration process:

1. Initial consultation – Arrange a consultation with an insolvency practitioner like Umbrella Insolvency. After a confidential discussion, they will assess your options and make a recommendation as to your best course of action which may be a Pre-Pack Administration.
2. Asset valuation – Your Insolvency Practitioner, with the assistance of agents, will determine the value of the company’s assets. The existing company will be put up for sale and the Insolvency Practitioner must listen to all genuine offers.
3. Sale agreed – A sale of the Company’s business and assets is agreed in principle and legal contracts are drawn up.
4. Administration – The Insolvency Practitioner is officially appointed as Administrator and the company enters Administration. Shortly thereafter, the company’s business and assets are sold by the Administrator to the new owners on the pre-arranged terms.
5. Creditors – Once the business and assets are sold, the Administrator will communicate with creditors and explain why the pre-pack administration was undertaken. At this point, the Administrator is obliged to disclose certain information to creditors.

What about creditors?

With Pre-Pack Administrations, creditors rarely recover all the money they are owed. If directors have not personally guaranteed debts, they can walk away without meeting their liabilities.

This type of insolvency can be controversial and ‘newcos’ will sometimes experience issues with key creditors, suppliers and customers. A commercial landlord, for example, may refuse to lease premises to a ‘newco’ if the directors owe money from a previous venture.

In many cases, however, Pre-Packaged Administrations are only used by companies that are not in a position to repay debts. In these circumstances, a Pre-Pack Administration and Liquidation can be the most beneficial outcome for creditors.

How should I start a pre-pack administration?

Pre-pack Administrations have the potential to be highly complicated and costly. In many cases, another insolvency solution will be more appropriate.

Any company director that is seriously considering a Pre-Pack Administration should seek professional advice from an experienced Insolvency Practitioner. Umbrella Insolvency’s team of advisers and practitioner can give you the greatest chance of success with a Pre-Pack Administration. Speak to a member of our team for more information. Call: 0800 611 8888.

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