Pre–Pack Administration occurs when the assets of a company are sold by an agreement which is effective immediately on entering administration. This can ensure elements of the business are preserved and it continues to trade.
The main advantage is that the purchaser has the opportunity to purchase assets without any interruption to trading which can maximise value. The business can be transferred to a new company and may include employee contracts, thus saving jobs. Continuation of on-going contracts with customers and suppliers can also occur.
Pre Pack Administration has been a popular way of helping businesses manage potential insolvency issues, however there are two conditions which need to be fulfilled.
- The new company must have sufficient funds to purchase
- The business must be purchased for a fair/market value
The sale will need to be independently assessed to ensure that rules governing this process are complied with.
While Pre Pack Administration may seem like an easy option for company directors to buy back the business, it is subject to regulatory safeguards to which the Administrator must adhere.
There must be genuine reasons why the company should be rescued via this process, in particular to achieve a better realisation for creditors. This is why there are strict guidelines in place to protect creditors.