Pre-Pack Administration

Pre-pack administration is a type of company administration process whereby the sale of a business is agreed upon before an administrator is formally appointed.

The pre-pack process differs from the standard administration process as the sale of the business and any assets of the company are negotiated before the appointment of administrators and completed either immediately, or upon the appointment being confirmed, rather than after the appointment, as with the standard administration process.

Administrator contacted – Directors/ shareholder will seek the advice of an insolvency practitioner who will provide initial advice, and should it be determined that a pre-pack administration is appropriate, they will value company assets and prepare a Statement of Affairs.

Due diligence – If business assets are to be sold to an existing company, steps will be taken to ensure that the buyer has the necessary funds. The insolvency practitioner will request management accounts and other relevant information as part of due diligence.

If the intention is to sell the assets to a new company, or ‘newco,’ cash flow, profit and loss, the insolvency practitioner will request balance sheet forecasts to demonstrate the viability of the new company, and its ability to purchase the assets.

Administration commences – The administrator will be appointed and the company will enter administration immediately. The sale of assets to the newco will be completed immediately.

Creditors’ meeting – The administrator will organise a creditors’ meeting during which an explanation and justification for the pre-pack administration is provided.

Creditor distributions – The insolvency practitioner will repay creditors pro-rata, with funds received from the liquidated assets.

• Allows for the sale of a business as a ‘going concern’ without disrupting business operations
• Preserves the value of the company and assets, particularly ‘work in progress’
• Provides continuity to employees during the sale process
• Protects brand image and therefore, increases the likelihood of jobs being saved, suppliers being paid under the new ownership and maximising creditor returns
• A pre-pack costs less than a standard company administration as it’s quicker
• Company directors retain control of the business during the procedure

The criterion for pre-pack administration is strict, and you must be able to prove that this route is in the best interests of creditors. As a baseline, the value of company assets must equate to enough to repay secured creditors. Our insolvency practitioners can arrange an asset valuation to help determine if this route is suitable.

If pre-pack administration is not suitable for your business, our insolvency practitioners can discuss more appropriate options which may include a Company Voluntary Arrangement (CVA), or a Creditors’ Voluntary Liquidation (CVL).

Pre-pack administration is intended to preserve the goodwill of a business so that a smooth transition to new ownership is possible. We have a long history of insolvency experience, serving clients nationwide, and we understand the complexities of a pre-pack administration. For more information, get in touch with a licensed insolvency practitioner near you.