Pre-Pack Administration

A Pre Pack administration is a useful and well established insolvency process which enables the quick and efficient sale of a business experiencing financial difficulties.  All or part of the business and it’s assets is negotiated and agreed prior to an Administrator being appointed.  A pre-pack can provide the best outcome for all concerned in appropriate circumstances.  

A pre-pack is most commonly used where the business and assets of the company need to be preserved as a going concern and a quick transition to transfer the distressed business to a purchaser is needed. For example, if ongoing contracts and work in progress is in place and needs to be maintained as part of the sale. As a result of COVID-19, pre-pack sales will no doubt be used more frequently over the coming months.
An administrator needs to be able to demonstrate that the sale reflects the best outcome for creditors by maximising the value realised and mitigating creditor liabilities.  An example of the reduction of liabilities is the transfer of employees under TUPE regulations as after a Pre-Pack sale the employees will normally transfer to the purchaser.  However, this can represent a liability for the new company when they inherit employee liabilities. 

In practice an Administrator has to be satisfied that the optimum value has been obtained by instructing a professional valuer to value the business and it’s assets and market the business appropriately. When the Administrator is confident this has been achieved a sale can usually complete very quickly.

Pre-pack sales receive understandable scrutiny and it is imperative that insolvency practitioners take the necessary steps to ensure that they are acting in the best interests of creditors and are able to demonstrate this to creditors. Various measures are in place to address these concerns and provide greater confidence in the pre-pack process.  The measures include: 

  • Statement of Insolvency Practice (SIP) 16 which, amongst other things, details the process which IPs should follow when marketing and valuing a business and/or assets being sold by way of pre-pack administration and requires IPs to disclose a large amount of information to creditors following completion of a pre-pack sale to give understanding and transparency about the process.

  • A Pre-Pack Pool which can be approached by connected party purchasers on a voluntary basis to give an independent opinion on a pre-pack sale proposal.
  • Draft regulations have recently been released to expand on these measures with a view to providing greater confidence. These include preventing an administrator from disposing of property of a company to a person connected with the company within the first 8 weeks of the administration, without either the approval of creditors or an independent written report by an evaluator. Changes will be implemented in due course. 

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What are the pros? 

  • Connected parties can purchase the business 
  • Business continuity 
  • Brand Image is maintained 
  • Value of the business is protected 
  • Job preservation  
  • Reduced costs   
  • Focus is on the future

What are the cons? 
  • Director conduct will be investigated 
  • Possible significant staff liabilities from the outset for the new company 
  • Concerns over transparency 
  • Practical challenges 

At  turpin barker armstrong we follow all best practice requirements and ensure complete transparency so all stakeholders can understand the process undertaken.  We have years of experience dealing with Company Administrations and would be happy to answer any questions you may have about the process.  We offer an initial meeting free of charge with no obligation to go ahead. Our licensed practitioners are always at the end of the phone during the process to help ease any worries you may have.

We always offer the first meeting free with no obligations to commit