A pre-pack administration is a specialised insolvency process where the sale of a company’s assets or business is negotiated and agreed with a purchaser before an administrator is formally appointed.
This means that the sale can be completed immediately or shortly after the appointment and offers crucial advantages to key stakeholders compared to alternatives such as liquidation.
We list four of the main advantages to the procedure and who they benefit.
For creditors – maximised return and preservation of Asset Value
A core principle of a pre-pack administration is to maximise what can be repaid to the insolvent company’s creditors. Unlike a regular administration, where the administrator starts marketing the business after being appointed – in a pre-pack, the sale itself is agreed upon before this stage is required.
This rapid transfer of assets and ownership is vital because once a company’s financial difficulties are public knowledge, its value can fall sharply as key staff leave, customers cancel orders and the brand image is damaged.
A pre-pack deal helps protect assets such as goodwill, debtors and work-in-progress, which are often more difficult to realise once an administrator has been appointed. By achieving a swift and discreet sale before the company’s value diminishes, the process ensures preservation of asset value which in turn improves the overall return to creditors.
Administrators must be able to prove that a pre-pack offers the best financial return for creditors compared to every other option assessed.
For directors and employees – ensures business continuity
For the new owners or existing directors, a pre-pack administration allows the company to enjoy a new start. Business operations are less likely to be interrupted or detrimentally affected, helping maintain customer and supplier relationships.
For employees – job preservation and employee protection
One of the significant advantages of selling the business as a going concern for employees is that it saves their jobs. In most cases, employees of the businesses, along with their associated liabilities such as accrued redundancy and holiday pay, are automatically transferred to the purchaser due to the Transfer of Undertakings (Protection of Employment) Regulations 2006, also known as TUPE.
Maintaining continued employment is also beneficial to creditors as it reduces the value of and number of preferential and unsecured claims that would otherwise arise from redundancies.
For creditors – reduced costs and faster resolution
The quick nature of a pre-pack administration translates directly into lower operating costs compared to other insolvency procedures. Since a quick sale can be achieved and the administrator spends less time trading the business, there’s less risk that any cash reserves will be depleted.
Consequently, the costs of administration are generally lower, resulting in more money being returned to creditors.
Chris Horner, insolvency director with BusinessRescueExpert, said: “A pre-pack administration is one of those rare examples of everybody winning in a deal.
“Creditors, directors and employees can all point to tangible benefits they enjoy when a deal is completed and it allows companies to keep operating when there are no other alternatives apart from insolvency. Regular administration allows companies time and space to restructure and recover if they can but a pre-pack fast forwards the whole process for genuinely viable businesses.”
If your company is facing financial difficulties at the moment and administration sounds like it could pave the way for a successful recovery then get in touch with us today.
Once we get a better understanding of your position and circumstances, we’ll be able to work with you on a realistic path forward that could be completed early in the New Year.