Pre Pack Insolvency & Administration
A Pre Pack Administration (or pre-pack admin) is where an insolvent Company is placed into Administration but instead of the Administrator completing a break-up sale (or trading the Company for some time whilst a buyer is found for the business & assets) he then sells them immediately upon his appointment. Therefore, in this instance the business is generally considered viable, so a sale is negotiated beforehand (pre-packaged) and completed upon the Administrator’s appointment.
Usually the insolvent company ceases to trade and, if a successor company is to be set up to act as the purchaser, it starts trading on the day of the administration order as the sale cannot usually be concluded before the Administrator is in control.
The Secretary of State and Teresa Graham put greater scrutiny on this process in recent times with “the Graham review” with many legislative changes. It is this publicity which means that this procedure should only be handled by an expert.
Pre Pack Admin Advisers
Whilst this process is far less common these days, Bridge Newland are experienced in pre pack administrations, having provided advice to complete many Pre-Pack sales from Administration and given our low cost set-up we can offer this service at the cheapest rate.
Click on one of our quick links below to take you straight to your chosen area of this page regarding the area of pre-pack administrations you desire or alternatively scroll down as normal…
What is a Pre Pack Administration?
Our definition is as follows:-
“A Pre-Pack Administration is still a Company placed into Administration but, in the case of a pre pack, the sale of the assets of the Company has been negotiated, and agreed, prior to the Administrator being appointed, rather than after his appointment. The sale is then completed shortly after the appointment of the Administrator”.
Advice on the Process
The following is the basic step by step
- A Licensed Insolvency Practitioner from Bridge Newland Limited will meet with you to review your Company’s finances and establish where an Administration is suitable for your business. If so…
- The Insolvency Practitioner should be made aware of the details of any interest which you or any other party has in the business and assets.
- A valuer should then be instructed in order to access the value of the business and its assets and these should then be discussed with the intended purchaser.
- Action should then be taken in order to appoint the Insolvency Practitioner as Administrator of the Company (this can be by various methods and therefore is best to be discussed with a member of this office).
- Before the Administrator is appointed a sale price and terms are agreed (and approved by the valuer) then a sale agreement is drafted.
- The Administrator then gets appointed and the sale is signed off shortly after his appointment is confirmed.
- The Administrator then writes to all creditors of the insolvent Company and takes control over any assets not included in the sale. The Purchaser takes over trading from completion (but does not inherit the insolvent Company’s debt unless specifically agreed e.g. employees or lease liabilities are most common here).
Pre Pack My Business – Advice on Packaged Sales
Through our experience of completing many of these sales, we can ensure that the changeover from the insolvent company to the purchaser is seamless. This causes little disruption to the business, and the customers. Therefore if you are asking yourself “Can i pre pack my business?” but are concerned about how it effects your business, your staff or even whether you can afford to buy back your assets, get in touch on 0800 612 6197 as we will give you a no obligation review of the full pre pack sale process.
It is also worth noting that many of our pre pack sales are paid for over a number of months meaning that only a small deposit is required to be paid for the business and its assets by the purchaser (providing a personal guarantee is given) therefore time is given to repay the full sums allowing for better cash flow management going forward.
- It is a form of business recovery and therefore Pre-Packs can ensure the business is rescued.
- There is a better return for creditors than the alternative processes (such as Liquidation).
- Any legal actions either threatened or already commenced against the insolvent company are stopped as interim court protection is given to the insolvent company whilst the merits of an Administration are accessed. Then full protection is given by the courts once the Administration is granted.
- Staff remain employed as employees are automatically transferred to the purchaser under TUPE Regulations.
- There is often a seamless transfer of the business meaning continuity of service for customers and suppliers.
What are the disadvantages?:-
- Often the sale is a sale back to the same directors and/or the same shareholders (or other connected parties) therefore it can appear underhand to the creditors who have lost out. Given this, there is also a risk that the purchaser may go insolvent again and therefore is sometimes considered a trading risk by creditors. However Bridge Newland do not share this view.
- Often the business and assets are not openly marketed for sale which gives rise to questions as to whether the amounts received for the pre-pack sale is the best price and in the best interests of the creditors. Bridge Newland we try our best to allay these concerns by instructing independent Valuers to verify sale values, marketing where possible, and by ensuring that our reporting to creditors is completely transparent and extensive.
- Creditors and many other stakeholders have no input in the process until after the pre-pack sale is completed.
- The purchaser may take on a considerable amount of employee liabilities as a result of their employment being automatically transferred to the Purchaser under TUPE Regulations.
Is this the right step for my company?
Pre-Packs offer the ability to free your Company from the burden of your debts and pressure from creditors, whilst also ensuring that your business survives and creditors are repaid as much as possible. It is also worth noting that the industry success rates of Pre-Packs are far higher than CVA’s (being another method to save a business) as this process does not have to be run for the 5 years. A CVA will usually last for and are therefore cheap and quick to implement.
Newco directors should be prepared to accept reduced credit terms, though, and they can also expect in certain industries for suppliers to attempt to recoup some of their losses by imposing an uplift on supplies going forward.
When is this the most suitable option?
- When there are assets exceeding approximately £30,000 (this can include intangible assets)
- When there is a risk of distraint from a Landlord
- If a Winding Up Petition has been served against the insolvent Company
- When there are potential purchasers lined up to purchase all or part of the Company’s business and assets.
- If debtor collections are likely to be more successful if the customers receive continuity of service.
- When the Company’s Goodwill can be sold within an intended business sale.
- If the Director’s wish to purchase the business and assets but may not currently have the funds.
- When marketing the business and/or assets for sale would have a detrimental effect on the amounts which could be received for them.
- When it is the intention to retain all staff.
If you think that this procedure might be useful to you and could do with obtaining further advice. Please contact Ben Robson on 0800 612 6197 or click the button below to fill out our contact us form.
Can I do a Pre-Pack Liquidation?
If the assets of an insolvent company are not likely to realise a greater amount in an Administration than would be realised in a Liquidation. The Administrator is unlikely to be able to satisfy the court and the creditors that the objectives of an Administration can be achieved. Therefore the Company is likely to require a Liquidation instead of a Pre-Pack.
A business sale on a going concern basis can be completed however due to the nature of the Liquidation process (where a meeting to place the Company into Liquidation is held a few weeks after instruction) the process is less seamless and there is more likelihood that a break in trade will be experienced.
Because of this a Pre-Pack Liquidation is less likely and a Phoenix Liquidation is more likely (were a new co buys the assets from the insolvent company) further details regarding our Phoenix Company Liquidation services can be found elsewhere on this site.