Top 5 Pre Pack Administration – Questions and Answers
1. What is a pre-pack administration and how does it differ from a normal company administration?
The Association of Business Recovery Professionals defines a pre-pack sale as, “an arrangement under which the sale of all or part of a company’s business or assets is negotiated with a purchaser prior to the appointment of an administrator, and the administrator affects the sale immediately on, or shortly after, his appointment”.
Therefore the difference between a pre-pack and a normal company administration is that a prepackaged sale is negotiated before the Administrator’s appointment as opposed to being all negotiated and completed after the administrator’s appointment.
2. There may be other parties interested in purchasing my business in a pre-packaged sale, what marketing is done prior to the sale?
The proposed administrator will use his discretion as to whether it is cost effective to openly market the business given the costs and possible harm it could cause the business due to a delay in completing a sale whilst marketing is done. Therefore if a sensible offer for the business is made immediately this offer can be accessed and approved by a Valuer and may enable a sale to be completed without the need for marketing.
Best practice is always to market the business in some form, providing it does not diminish the goodwill of the business or cause harm to its trading therefore in some instances full marketing strategies are implemented (however this is more likely to apply to a normal company administration and not a pre-pack given the likely speed of the sale).
3. I would like to complete a pre-pack for my company but I do not wish to purchase all of the assets. Do I have to purchase all of the company’s assets?
All of the assets of the company do not have to be included in the sale, however the Administrator would prefer a complete sale due to the reduced costs of including everything in the sale. He also has an obligation to realise the most amount of money as possible for the assets, whether that be on a going concern basis, or a break up basis, and therefore if by excluding assets the realisable value falls below what could be achieved if sold by a different method then a Liquidation with a break up sale may be more suitable for you.
4. What happens to my employees if the business is pre-packed?
There have been many recent cases considered in the courts regarding employees and pre-packed sales which conclude that if a pre-packaged sale is completed then all employees are deemed to transfer under TUPE to the purchasing company automatically. This means that the purchase of the business through the pre-packaged sale cannot cherry pick some staff to take on and others to make redundant. The only way to take less staff on in the purchasing company would be to transfer them all and hope that they do not wish to continue with the purchaser (and therefore resign) otherwise you would have to make them redundant and cover their redundancy costs.
5. Is a pre-pack administration suitable for me?
If your business is sound but you have historical liabilities which you are struggling to meet and therefore would benefit from writing these off and if the business could be sold as a going concern, then it is likely that a pre-pack may be right for you. Give us a call to find out for sure…