Pre Pack Insolvency & Administration
What is pre pack administration?
Pre pack administration is an insolvency process which involves a company arranging to sell all or part of its assets to a buyer with the assistance of an Administrator to manage the affairs. In essence, the sale is typically negotiated in advance of the appointment of the Administrator, and the deal is completed soon after the Administrator is appointed. This process allows businesses to be sold quickly, efficiently and seamlessly, often preserving jobs and some or all of the value of the company.
Pre pack administration is also a great option for businesses threatened with a winding up petition.
Who is the company sold to?
Pre pack administration involves a legal business sale to a buyer who can be either a third party buyer or connected parties such as the existing directors. In both instances the purchaser is typically a company but can also be to whomever has the funding in place and represents the best outcome for creditors.
What does the pre pack administration process involve?
- If a company is facing insolvency, then they should contact our team of Insolvency Practitioners at Bridge Newland
- A dedicated Insolvency Practitioner will then discuss the situation with the client, before performing an assessment of their business and advising on all possible options
- If pre pack administration is determined as the best option, our Insolvency Practitioner will value the company’s assets and prepare a ‘Statement of Affairs’ (a document created to sum up the financial situation of a company)
- If the assets are being sold to an existing company, then the Insolvency Practitioner will ensure that the company has the necessary funds to buy all assets
- If the assets are being transferred to a new company, all financial forecasts should be provided to ensure they are viable
- Before an Administrator is appointed, a sale price and terms are all agreed and a sale agreement is drafted
- The Administration documents are then filed at companies house which, in turn, will place a temporary stop on any legal actions that may have been commenced against the company or are pending.
- Once the Administration is is confirmed at companies house and court, either by a certain period elapsing from the filing of the initial docs, or the granting of the order by a court judge at a hearing, the agreed pre packaged sale is then completed immediately and dated and timed for when the administration started.
- The Administrator then writes to all creditors of the insolvent company and takes control of any assets not included in the sale
- The purchaser takes over trading from completion – without taking on any of the insolvent company’s debt
Changes to regulations involving pre pack administration
It is worth noting that in 2021, the Administration Regulations came into effect. These Regulations aimed to increase the transparency of pre pack insolvency to connected parties by requiring the Administrator to obtain an independent ‘qualifying report’ from an evaluator, when a pre pack is applied. This should happen eight weeks prior to the appointment of the Administrator.
Pre Pack Administration Pros and Cons
What are the advantages of pre pack administration?
- Speed: The pre pack insolvency process can be completed quickly, which can help to preserve the value of the business and prevent further losses
- Continuity: By selling the business assets, the business can continue to operate without much disruption, helping to preserve jobs and maintain customer relationships
- Maximises asset value: Selling the assets in the controlled conditions provided by an administration can help to maximise asset value
- Control: By initiating the pre pack process, the company directors can retain more control over the sale process, rather than leaving it entirely to the Administrator
- Confidentiality: As the pre pack administration process is often not subject to the same level of publicity as the more traditional administration process, it can help to better maintain the company’s reputation and prevent potentially damaging customer relationships
What are the disadvantages of pre pack administration?
- Creditor dissatisfaction: Creditors might feel that they have been unfairly disadvantaged by the pre pack process, as they might not have had a say in the sale of the assets
- Potential for repeated risk: Often the pre pack process involves selling the company back to the same directors and/or shareholders, which means there’s a risk that the purchaser might become insolvent again
- Potential problems for purchasing company: The purchaser might end up taking on a considerable amount of employee liabilities as a result of their employment being automatically transferred under TUPE regulations
Get in touch with Bridge Newland
If your company is facing financial difficulties then contact our professional team of Insolvency Practitioners at Bridge Newland. We offer no-obligation advice and are here to support you every step of the way. Whether you want to discuss pre pack insolvency and administration or any of our other services, our team will go and beyond to help your company can move forward.
Call our freephone number on 0800 612 6197.