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

In short

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.   The term pre-pack administration is the name given to an administration where the sale of the business has been agreed beforehand and it is sold on the day of administration.

In more detail

Advantages of a pre-pack
  • It can be used to save a business, allowing the business itself to carry on and have continuity with the staff and customers and also some of the creditors. It often stays in the same premises with the same or similar name.
  • It is confidential before the sale takes place – this can help reduce any rumours of financial troubles and hopefully stop the business losing any customers.
  • It can be good for the directors who want to buy the business back. It does give the directors or management (if they are the buyers) a second chance and hopefully they have learnt from any mistakes or have kept the business going after an unpredictable major setback. An example would be a very large one-off bad bad debt.
  • It is quick so may result in a higher return to creditors. It means the business does not have to be traded under the supervision of an administrator so this can also save on professional fees.
  • The brand image is better maintained. A quick, fair price sale is better to preserve the reputation of a business and the value of the goodwill.
  • Historical creditors are left behind – a disadvantage of course to the creditor – but may be better to get something back than nothing at all.
Disadvantages of a pre-pack
If you would like more information on pre-pack administrations then contact our specialist team on 0800 331 7417 for advice or complete the form below.

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