A pre-packaged administration sale, or “pre-pack”, is a sale of all or part an insolvent company’s business which is negotiated and arranged prior to the appointment of an administrator. The sale takes place immediately or shortly after the appointment of an administrator, such sales can be to the directors or persons connected with the insolvent company.
The process can be seen as controversial as creditors may be unaware of the sale until after it has been completed. The rationale behind the process is that a swift sale of the business assets may be necessary, and will often result in the best price being achieved. If the sale was delayed, creditors could ultimately lose out because the price charged for assets will often be reduced after a company enters administration.
An administrator must show creditors that a fair price has been paid for the assets/business and explain why it was not possible to trade the business which would have allowed an open and transparent sales process.
Advantages of pre-packs are:
- Minimum disruption to the business
- Preservation of the company brand
- Preservation employees jobs
- Maintaining trade with existing suppliers and customers
Where it’s intended that a pre-packaged administration sale will involve the sale of all or a substantial part of the company’s business or assets, and the purchaser is a connected party (as defined in paragraph 60A(3) of Schedule B1 of the Insolvency Act 1986), then an administrator will need to do one of the following prior to any sale being completed:
- Ensure the connected party obtains an evaluator’s report; or
- Obtain creditor approval.