What is a Pre-Pack Administration?

Clare Lang, Head of mfg’s Corporate Division, examines a popular insolvency procedure that’s been featured in the media recently: the pre-pack administration.

What is a pre-pack administration involves the sale of a distressed company’s business and assets to a new buyer, typically a new company called ‘newco’ (though it could be an existing third party or current directors). It is a process that can be used for any size of distressed business and is often more appealing than liquidation due to its speed and certainty.

What Exactly is a Pre-Pack Administration? A Comprehensive Explanation

One of the main benefits is that it enables trading to continue almost as normal with relationships with customers and suppliers preserved. Another benefit is that it provides a better return to creditors than liquidation. A final advantage is that the directors of the original company can take back a portion of their shareholding in the new ‘newco’ and be involved as directors which gives them a second chance to succeed without being encumbered by historic debt.

When carrying out a pre-pack administration, the insolvency practitioner needs to carefully consider the market and what is best for the company’s creditors. To help with this, a business plan should be prepared including cash flow, profit and loss and balance sheet forecasts to show that the new purchase is viable. In addition, a list of valuations should be documented and a record made of any offers received.

The insolvency practitioner will need to contact floating charge holders such as banks and lenders with security and will only be able to start the sale if they do not object. A contract is then drawn up to appoint the insolvency practitioner as Administrator and once funds are acquired and the insolvency practitioner has met their compliance standards, the pre-pack sale can begin.

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