Pre-Pack Administration Explained

The short answer

A pre-pack administration is an administration in which a sale of all or part of the business or assets is negotiated before the administrator's appointment and completed shortly afterwards. It may preserve value, employment and continuity, but it must serve the statutory purpose of administration and be justified against available alternatives.

It is not a method for directors to move a business away from debts informally. Assets require proper valuation and the administrator acts for the statutory objectives and creditors, not solely for the former directors.

When it may be considered

A pre-pack may be considered where a viable business would lose value rapidly through interruption, publicity or loss of employees and customers. It is not suitable merely because directors want to continue through a new company.

Connected-person sales

Where a substantial disposal to a connected person is proposed within the first eight weeks of administration, regulations restrict the administrator from completing it without creditor approval or a qualifying evaluator's report. The detailed requirements and exceptions are technical.

An evaluator's report is not the same as a guarantee that the sale will succeed or that no later questions will arise.

What directors should expect

Independent valuation and marketing evidence may be required
Funding for the purchaser must be real and evidenced
The proposed consideration and terms will be scrutinised
Employee, contract, licence and property issues require attention
Reuse of the old company's name may be restricted
Director conduct and earlier transactions can still be examined

What to avoid

Transferring assets before appointment without proper authority and value
Describing an informal phoenix transaction as a pre-pack
Assuming creditor debt can simply be left behind without scrutiny
Using a prohibited company name without advice
Presenting speculative funding as committed money

Information to gather

Current financial information and short-term cash flow
Asset registers, intellectual property and independent valuations
Offers, marketing records and purchaser funding
Employee and key contract information
Security documents and creditor claims
Details of all connections between seller, directors and purchaser

What happens next?

Review company administration, reusing a company name, or complete the confidential assessment.

Authoritative sources

This guide provides general information for directors of companies registered in England and Wales. It is not legal, financial, accounting or insolvency advice.