Pre-pack administration is an insolvency process whereby a financially distressed company employs an insolvency practitioner to prepare the business and its assets for a sale to take place, as soon as reasonably practical after the business enters formal insolvency.
The name pre-pack comes from the fact that any marketing and most of the sale terms are agreed in advance of the formal insolvency.
In the past, the term related solely to the administration insolvency procedure. However, more recently, pre-pack can refer to any pre-packaged insolvency sale. In fact, the process is more commonly used via liquidations than administration.
As pre-packing has become more widely used, it has generated media coverage and gained some negative connotations. It has been criticised as lacking transparency and excluding creditors from the decision making process. That being said, it has remained a popular and highly effective insolvency mechanism for businesses.
Pre-pack creates a seamless transfer of assets and employees. Furthermore, because it allows for continuity, it reduces redundancy requirements and so keeps a higher value in the business. Ultimately, this generates a higher return of funds back to creditors than if the company were to shut down.
Pre-packing can only be carried out by a licensed insolvency practitioner. It is a formal insolvency process and such, there are ethical and practical guidelines that the insolvency practitioner must follow to ensure that the process is fair to all stakeholders.
Anyone can purchase the assets of a company in a pre-pack. However, most businesses have a higher value to their current management. As such, most pre-packs tend to lead to a sale to an entity that is reformed from the previous company management.
A typical sale usually includes the transfer of any work in progress, goodwill (such as the name, website and brand), physical assets and employees. The value of any sale of the assets will need to be recommended by an independent valuation agent.
Under a pre-packed sale, employees’ rights are deemed to have transferred with the sale.
Our fee for a pre-pack is the same as our fee for liquidation. To get a quote, complete our online liquidation fee, calculator.
If you are considering whether a pre-pack is suitable, and you are also intending on buying back the business, you’ll need to bear in mind that the sale cost will comprise of the following:
Furthermore, outstanding debtors do not usually form part of a sale, so you will also need to consider working capital requirements. There are funding options available, which may be able to assist.
If you’d like to discuss this in more detail, or you’d like to find out how pre-pack might work for you, contact one of our business rescue experts.