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Pre-pack administration
Some pre-packaged administrations attract adverse publicity based on creditor unease that business owners have been able to do what appears to be a cosy deal and restart a business debt-free. Nevertheless, pre-packs can be a useful tool to preserve value in a potentially viable business, help retain employment and provide a swift and better outcome for creditors.
However, recently introduced updates to the legislation around pre-packs entitled ‘Regulation of Pre-Packs The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 which came into force from 30 April 2021 imposes tougher controls on pre-pack sales which are likely to leave connected party pre-pack sales full of difficulties.
The new regime states administrators cannot make a substantial disposal of the company’s business to connected parties (directors or shareholders) in the first eight weeks of the administration period unless;
- The creditors approve the transaction, or
- They have a qualifying report from a qualified independent ‘evaluator’
A sale out of administration requires that the qualifying report is commissioned by the proposed buyer and made by an ‘evaluator’. The report will detail the qualifications, knowledge, experience and insurance cover of the evaluator and identify the assets being sold, the consideration being provided, details of the connected person and the nature of their connection to the company. It will also include a statement as to whether or not the evaluator is satisfied that the consideration to be provided and the grounds for the disposal are reasonable in the circumstances.
Director
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- jowatts@mw-w.com
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How pre-pack administration compares to company administration
A pre-pack administration is one specific form of insolvency procedure that can deliver a fast, pre-arranged sale of a business or its assets. Still, it is just one of the options available under the broader umbrella of company administration.
Unlike a standard administration where the administrator seeks the best outcome over a longer period, a pre-pack can preserve value by securing a buyer before the administrator is formally appointed, which may benefit both creditors and the ongoing business.
If you’re unsure whether a pre-pack is suitable for your situation, our experienced team at McTear Williams & Wood can guide you through how it compares with traditional company administration and what each route means for stakeholders.
For an overview of the wider company administration process, visit our company administration page.
Free advice line for distressed company directors > 08003317417
Pre-pack pools
The Pre-pack Pool is one of the recommendations arising from the Teresa Graham report into pre-pack administrations. The Pool consists of an independent body of experienced business people who will offer an opinion on the purchase of a business and/or its assets by connected parties where a company is going into administration and a pre-packaged sale is proposed. The aims of the Pool are to a) increase transparency of the pre-pack process in cases which involve connected parties and; b) to provide assusrance for creditors that independent business experts have reviewed the proposed transaction.
The Pool is determined to provide a professional and independent evaluation service supporting the insolvency profession in rescuing viable businesses and aiming to give creditors the assurance that where pre-pack sales to connected parties are undettain they have been entered into reasonable and with regards to creditors’ interests.
When might a pre-pack be appropriate?
- When time is of the essence to maintain business continuity.
- When the core value of the business might dissipate otherwise.
- If there is a danger of losing key staff or harming client relationships through uncertainty.
Pre-packs require careful handling by experts.
How can McTear Williams & Wood help?
Our senior team are fully conversant with the new regulations and in the right circumstances can execute the pre-pack process quickly and ethically whilst safeguarding the value of the business. We can also justify the process to creditors and other stakeholders. For more information or a discussion regarding your specific circumstances please call us on 0800 331 7417.
Many directors understandably have concerns about insolvency costs and how fees are paid. In most cases, insolvency practitioner fees are paid from company assets rather than by the director personally. Further details on how fees are calculated, approved and paid can be found in our guide to charge-out rates and insolvency fees.
Businesses for sale at IP-BID.com
Sometimes there is a need to sell the business and/or assets arising out of a company administration, and you can find out more about businesses for sale both from McTear Williams & Wood and other insolvency practitioners at the UK’s leading insolvent business and asset website www.IP-BID.com – this is the UK’s online market place for buyers and sellers of businesses in distress.
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