How Does a Pre-Pack Work?

Pre–Pack Administration occurs when a company negotiates the sale of assets prior to it entering administration which takes effect on the company entering administration. This ensures elements of the business are preserved and it continues to trade.

The mechanics of the process can be summarised as follows:

  • The directors conclude that the business is not viable and unable to continue to trade on a solvent basis. Rather than risk accusations of fraudulent or wrongful trading and with the prospect that a creditor may take action to wind-up the company, with a resultant catastrophic impact on assets, the directors seek professional advice.
  • There follows a confidential assessment of the business, including fixed and current assets, liabilities (both secured and unsecured), work in progress, staff contracts, lease agreements and contingent debts.
  • If it is then determined that a pre-pack sale is the most appropriate solution a detailed independent valuation is undertaken and negotiations entered into with a purchaser, usually under the terms of a confidentially agreement. The purchaser can be either connected or unconnected with the existing shareholders and directors.
  • The proposed administrator will consult with any secured creditors to make sure that there are no objections to the process. The licensed insolvency practitioner is then appointed administrator by filing the appropriate papers at Court. Administration proposals and a statement of affairs will subsequently be submitted to creditors and a meeting held, at which the administrator will expand on the specific reasons for the pre-pack sale.
  • An appropriate exit route from the administration will be agreed, which normally occurs when the terms of the proposals have been met. This is also required as an administrator is unable to distribute funds to unsecured creditors. The exit routes may be a CVA, liquidation or dissolution dependant on the specific circumstances of the matter.