Prepacking: answers to the most asked questions by directors

To help you understand some of the practical implications of pre-pack administration, we have compiled a list of the questions directors most commonly ask us here so you can get your prepacking answers.

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Is prepacking legal?

Yes.  It is a legal process that ultimately saves jobs, and assists the UK economy. There are regulations and legislation that must be complied with, and you must employ a licensed insolvency practitioner to carry out the formal insolvency.

How much does a prepack cost?

Use our liquidation fee calculator to get an estimate of the fees (our fees for prepack are the same as our fees for liquidation). If your assets are worth materially more than the fees, then you will only need to pay for the assets of the business, and our fees will be drawn from this.

It may be possible to make part of the payment spread over a period of time.

How are the assets valued?

Independent valuation agents that specialise in sales of assets and businesses of insolvent companies will value the assets.

Are the assets marketed for sale?

Only if the type of assets warrants it.  For small value asset sales, it is not usually cost effective, nor prudent to place the assets to the open market, as long as a fair value offer has been received in advance.

Can I re-use the company name?

Yes, but you must purchase the company’s ‘goodwill’ in order to do.  The new business will also be required to comply with obligations to provide notice to creditors of the transfer. There is more information on the process here.

Can my offer to buy the assets be rejected?

The independent agents will only reject your offer if they believe more could be achieved on the open market. However, they are fair minded and pragmatic.  If you feel that your offer is representative of the true value, you will have an opportunity to explain why and negotiate directly with the agents.

You do not need to proceed with the formal insolvency until you have reached agreement on what happens with the assets.  This way you can avoid any potentially unexpected outcomes.

What happens with the employees in a prepack?

In a prepack, if the sale is agreed pre-formal insolvency, then all employees rights transfer across to the new business.  For employees, this means that their entitlements such as holiday pay and accrued redundancy transfer with them.  For the employer, this is an accrued extra cost that needs to be factored into their financial planning.

However, if the company enters liquidation first and then agrees a sale, it is possible that the staff are not automatically transferred, and may be able to claim from the national insurance fund. This is a a complicated issue, and expert advice should be sought as part of the planning process.

Can I stay in the company’s existing premises?

This will depend on the type of lease the company operates, and any negotiation with the landlord.

Is there funding available to assist with the asset purchase?

Yes.  We are happy to point you in the direction of funders who can advise.