FAQs for directors: pre-pack administrations

What is a pre-pack?

It is a type of administration where a sale of the business and assets is lined up before the appointment and completed by the Administrator immediately or soon after he/she is appointed.  The benefit is that the business can be sold intact and undamaged by a lengthy insolvency process.  Approximately 50% of all administrations are pre-packs. 

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What are the advantages and disadvantages of a pre-pack administration?

A pre-pack administration is a very effective and quick way of saving a business.  However, they are not usually popular with creditors because they find out the business has sold after the sale has taken place and it is then too late to do anything about it.  

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Pre-pack administration – what you need to know

A pre-pack administration is where the buyer of the business has been agreed before the date of the administration order.  On the date of administration the business is sold and then the majority of the creditors, shareholders and employees are notified after the event.  Pre-packs were designed to preserve the value of the business by allowing a very quick sale.  

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When should I use a pre-pack administration?

A pre-pack administration is beneficial when you have an insolvent business worth saving and know a potential business buyer. This buyer may be the existing shareholders and management or alternatively you may know another possible buyer or feel that advertising would help find a buyer in a short period of time.

Why have pre-packs got a bad name? 

Creditors are suspicious that a cosy deal has been done behind closed doors, often back to the company’s former management.  In recent years the regulations around this have been tightened and pre-packs are a useful option in the right circumstances.