A ‘pre-pack’ administration is an insolvency process where a company arranges to sell some or all of its assets to a buyer.
In some cases, that buyer is the company directors themselves who form a new company.
Pre-pack administrations must be overseen by a licensed insolvency practitioner such as ourselves.
How Does a Pre-Pack Differ from a Phoenix?
This process is not designed to allow directors to negate their creditor obligations simply because company debts are liquidated along with the company – quite the reverse.
The process can in many cases provide a better return for creditors than a simple creditors’ voluntary liquidation and that is the aim.
Pre-packs have received somewhat of a mixed press due to creditor anger at directors often buying the company and or assets often at an undervalue, but even the government’s insolvency service acknowledges that in 82% of cases – employees’ jobs are saved, helping with employment figures within the UK. So Pre-Packs can work as long as the rules are followed.
A phoenix is the term used for the founding of a new company from the ashes of the old. In the past, unscrupulous directors used the method to write off the debt from one company, then form a new one immediately and start again.
While ‘phoenixing’ is illegal, the pre-pack administration process, involving 3rd party valuation of company assets, is entirely legal and a useful mechanism in the right situation.
Pre pack Deal Rules to Note
- The business must be appropriately marketed to obtain the best return for creditors;
- The directors cannot trade with the same company trading name without the permission of creditors and, or the appropriate court;
- The business assets must be valued by an appropriate valuing agent or chartered surveyor;
- The creditors interests must be deemed to have been a priority prior to the liquidation.
If you have revenue producing contracts that your company is committed to, company assets and/or properties, but they are under threat from serious litigation, winding up petition; or angry creditors; a pre pack can provide an excellent solution for your situation.
Advantages of a Pre-Pack Administration:
- Continuity – a pre-pack can provide a fast, effective way to sell the assets to a potential buyer with minimum disruption to the business.
- The buyer can acquire the assets, contracts, etc. without having to take on the debts.
- It can provide an ideal opportunity to restructure the company in whole, from employees to contracts.
- It can sometimes help stop legal action as creditors have a chance of a better return given that the pre-pack costs are lower.