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.
Pre-pack Administrations have the potential to be highly complicated and costly. In many cases, another insolvency solution will be more appropriate
Grants the business immediate legal protection from itâs creditors.
Allows for the business to be saved and gives continuity to customers and employees.
Who would use a Pre-Pack Administration?
- Often used to sell a business to existing directors operating a new company (‘newco’)
- Suitable for viable companies facing financial difficulties or creditor threats
- Preserves business continuity, goodwill, book debts, and asset value
- Newco must have adequate funding to buy the company at a fair price
- Not available if a winding-up petition has already been issued
The Pre-Pack Administration Process
Initial Consultation
Meet an insolvency practitioner to assess options and recommend the best course of action.
Asset Valuation
Practitioner and agents value the company’s assets and consider all genuine offers.
Sale Agreed
Business and assets sold in principle; legal contracts prepared.
Administration
Practitioner is appointed Administrator; company enters administration; sale to new owners completed.
Administration
Administrator communicates with creditors and explains why the Pre-Pack was used.
Impact on 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.
