Business Rescue

Business Pre-Packs

Pre-pack administration is a great tool for helping a struggling business to remain viable by selling the business and assets to a "newco", which can even be the current shareholders. Pre-pack administration and administration follow the same best practice requirements, but there is one primary difference with the pre-pack process. With a pre-pack administration, the sale of the business and associated assets are negotiated before the appointment of administrators, completing either immediately upon or shortly after the appointment.

Our Insolvency Practitioners Jeremy Frost and Patrick Wadsted have assisted many business owners through pre-pack administrations.  

A pre-pack administration allows current owners and directors of a business to choose who to sell their company to.  A deal for the sale of the insolvent company's business and assets is agreed in principle before the company goes into a formal insolvency process, usually administration.

The process provides business continuity and is a very cost effective option.

There can be negative publicity associated with pre-packs, but R3, the insolvency trade body, stated recently that they van be more beneficial to secured creditors.

Independent research shows clear evidence that pre-packs fare considerably better than alternatives in terms of the retention of jobs and returns to secured creditors.

R3

What does ‘pre-pack’ mean?

Previously, the term ‘pre-pack’ related solely to the administration insolvency procedure, but now, it can refer to any pre-packaged insolvency sale. It’s commonly used to refer to the process of liquidations more often than administration. Pre-packing is a popular and incredibly efficiency insolvency solution for businesses, creating a seamless transfer of assets and staff and allowing for continuity of the business. This option also generates a higher return of funds for creditors than if the company were to close.

Advantages of a pre-pack administration

  • Allows for the sale of a business as a ‘going concern’ without affecting the continuity of operations
  • Preserves the value of assets and debtors which can be harder to realise after an administrator has been appointed
  • Lower costs for the process compared to trading administration
  • Directors can maintain a certain level of control over the business

Disadvantages of pre-pack administration

  • The process can generate negative publicity
  • The business might be sold to a competitor
  • HMRC are likely to demand a VAT security deposit
  • TUPE rules apply so job contracts will need to be carried over

Frequently Asked Questions

When is pre-pack administration the best option?

Pre-pack administration isn’t the best solution in every scenario – in some situations, it might be that a Company Voluntary Arrangement or a Creditors’ Voluntary Liquidation is a better choice. However, in certain cases, pre-pack administration offers the most benefits for all involved.

The conditions for pre-packing are that it must be in the best interests of creditors and those of the company, and the assets need to be worth enough to pay secured creditors. Without this, the business may be forced into receivership. Companies already insolvent and unable to repay unsecured creditors could benefit from pre-pack administration, since unsecured creditors won’t be paid with any other route.

What are employees’ rights during pre-pack administration?

One of the benefits of a pre-pack situation is that employees are well-protected, but there is the risk that they may become unsecured creditors if the payment of their wages is in arrears beyond a protected level. The Transfer of Undertakings (Protection of Employment) Regulations apply in this situation, so employees of the insolvent company should transfer across to the purchasing company with the terms of their contract in place.

How long does the pre-pack administration process take?

There are several steps to the pre-pack administration process. Here, we’ve compiled the average timeline and what each step involves.

Initial Administration Advice – 1 day

The first step is seeking advice from a qualified Insolvency Practitioner who can give you an outline of the various options and help you determine if pre-pack administration is the right option for your circumstances.

Review Information – 1-14 days

After the initial consultation, company directors should review the information they’ve been supplied with. The Insolvency Practitioner will offer advice on how to deal with company assets and other matters related to the company, such as personal guarantees, contracts and leases.

Arrange Valuations – 7-14 days

This stage requires a professional valuation of the business and the initial stages of marketing it to third parties so they can start the bidding process. Interested parties are required to sign binding confidentiality agreements, and any offers on the business are typically dealt with via a sealed bids process.

Sale Arrangements – 3-5 days

For a pre-pack administration to take place, the Insolvency Practitioner will recommend that you prepare a viability statement for the new business for the next 12 months and obtain an opinion from the pre-pack pool. These notices will be disclosed to creditors. When both of these have been provided, a sale agreement will be created between the Insolvency Practitioner’s solicitor and the company’s solicitor.  

Instruction and Arranging the Board Meeting – 1-3 days

If you’re happy to go ahead, the next step is to formally instruct the Insolvency Practitioner to assist the business with placing the company into administration. This requires a board meeting to be arranged for administration documents to be signed by the requisite authorities.

Notice of Intention to Appoint an Administrator – 5 business days

If the business has a qualifying floating charge holder registered at Companies House, advance notice of the administration needs to be supplied to them. The designated board member will be required to visit their solicitor to provide a statutory declaration on the document, which is then filed in court and served on any charge holder.

Appointment of Administrator – 1 day

When the charge holder has consented, the notice of appointment can be prepared and filed in court. Once this takes place, the company is officially in administration.

Statement of Affairs – 11 business days

Once the business is in administration, the administrator may require a Statement of Affairs This details the company’s assets and liabilities, and it usually prepared with the assistance of the business’ accountant. When this has been drawn up, the directors will need to sign it and then a copy is submitted to Companies House and all creditors.

Post-Liquidation and Closure – 9-12 months

At this stage, the company’s books and records will be moved to the administrator’s office, and remaining assets should be properly realised. Every director of the company is required to declare that there are no outstanding matters, and the Insolvency Practitioner will then either apply for the dissolution of the business or move into liquidation to allow for distribution to unsecure creditors. Whichever option is chosen, the administration of the business comes to an automatic end after one year.

Find out more

We give free and impartial advice on pre-pack administrations and business continuity from our offices in Croydon and London.

If you would like to instruct us, we will quickly execute this process for you. Call us on 0345 260 0101 during working hours, on for urgent help call us out of hours on 07714 099 691 and talk to the experts in pre-pack administration.

Contact an expert for professional help and advice

Our team member below will be able to help with all your questions

Patrick Wadsted

Licensed Insolvency Practitioner

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