Pre-pack Administration

It is often the case that the directors/shareholders of a business have invested a significant amount of time and money in building a business that, for whatever reason, may have fallen on hard times and become insolvent. There may be a number of options that the company can consider with one of those being a Pre-pack Administration.

A Pre-pack Administration is a shortened term for Pre-packaged Administration. It enables a company that is insolvent to legally sell its assets to either a third party or to its existing directors who are setting up a new company to run the existing business (often referred to as a “newco”).

This is an acceptable course of action as long as an independent professional valuation of the assets is obtained resulting in a realistic price being achieved and is in the best interests of the insolvent company’s creditors having considered all available options. This arrangement must be entered into before the company goes into Administration and is completed when the Insolvency Practitioner is appointed.

A Pre-pack Administration has a number of benefits to the business such as: –

• It reduces the administration costs as they have less assets remaining in the old company to deal with.
• A fair price is received for the assets.
• It enables the business to continue trading but under the new company name that has benefitted by taking over ownership of the assets of the insolvent company.
• It can swiftly be arranged.
• Bad publicity is reduced.
• Any adverse impact from the insolvency of the old company is reduced.

In effect, it ensures a smooth transition protecting the likes of assets, relationships with existing customers with whom the business may have work in progress and retaining staff. It provides the business with an opportunity to succeed “second-time around”.

If the above is something that is of interest to you then do not hesitate to get in touch.