What is a Pre-Pack Administration?

A pre-pack administration is a sale of a company’s business or assets that is negotiated, valued and contracted before an administrator is appointed, and completed immediately afterwards.

The lights stay on, the staff stay in their roles, the trading name often continues under a new corporate vehicle. The unsecured creditors of the old company, in most cases, do not.

It is the most controversial tool in UK corporate insolvency, and the most useful one in a narrow set of cases. Both of those things are true at once.

The legal scaffolding sits in Schedule B1 of the Insolvency Act 1986. The disclosure rules sit in SIP 16. The connected-party safeguards sit in The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021.

If you are a director thinking about a pre-pack to your own NewCo, every one of those frameworks is built to scrutinise what you are about to do, not to wave it through.

What follows is what we tell directors when they ring us about a pre-pack: where it genuinely helps, where it just locks in personal exposure, and what HMRC, the secured lender and the unsecured creditors will see when the SIP 16 letter lands on their desk.

Pre-Pack Administration at a Glance

A pre-pack administration is a sale of the company’s business and assets negotiated before the administrator’s formal appointment under Schedule B1 IA 1986, then executed within minutes of appointment. Where the buyer is a connected party (a director, family member, or related company), SI 2021/427 requires a Pre-Pack Pool referee’s opinion or shareholder approval. SIP 16 governs the administrator’s creditor disclosure. The route preserves jobs and goodwill but carries close scrutiny on price and process.

Quick Answer: Pre-Pack Administration

A pre-pack administration is a pre-arranged sale of an insolvent company’s business or assets, signed by the administrator within minutes of taking office. The buyer takes the trading business clean of the old company’s debts.

The old company is then wound down inside the administration, with proceeds distributed to creditors under the statutory waterfall.

Who Pre-Pack Administration Is For

Pre-pack works for businesses where the going concern is worth more than the break-up value, the trading name carries goodwill, and a slow marketing process would burn the value before sale.

It does not work for shell companies, asset-only entities, or businesses whose customers are already gone.

Main Risk in a Pre-Pack Administration

Where the buyer is connected to the directors, you are in the highest-scrutiny corner of UK insolvency. The administrator must justify why a sale to you returns more to creditors than any other route.

The 2021 Regulations require an independent evaluator’s report. SIP 16 forces full written disclosure to every creditor within seven days. If any of that is weak, the deal can be unpicked.

What to Do Next About a Pre-Pack Administration

Speak to a licensed insolvency practitioner before you speak to a buyer, before you transfer assets, and before you stop paying anyone.

Most of the avoidable mistakes in pre-pack cases happen in the four weeks before the IP is appointed, not after.

What Is Pre-Pack Administration?

Pre-Pack Administration Meaning

A pre-pack administration is a variant of administration under Schedule B1 of the Insolvency Act 1986.

The distinguishing feature is timing: the sale of the business or assets is negotiated, valued, and the contract drafted in the period before the administrator is appointed. Completion happens straight after appointment, often the same day.

The administrator does not market the business themselves over weeks; the marketing has already happened, or has been deemed not viable, and the price has been set against an independent valuation.

When Pre-Pack Administration Is Suitable

It is suitable when the business has trading value that will not survive a public administration. Customer contracts, key staff, regulatory licences and supplier credit are all things that evaporate the moment a company is publicly insolvent.

A pre-pack preserves them by collapsing the gap between the old company ending and the new one starting into a single afternoon.

Typical fits:

a service business losing clients to competitors the moment word gets out, a manufacturer with bespoke contracts that suppliers will refuse to honour to an insolvent counterparty, a hospitality operator whose value is in a leasehold that a landlord can re-enter on insolvency.

When Pre-Pack Administration Is Not Suitable

It is not suitable where the company has no goodwill left to preserve, where the directors simply want to ditch debt and start again with the same customers, or where the unsecured creditors include a single dominant trade creditor likely to challenge the sale on the basis of a clear preference.

It is also not suitable where HMRC’s secondary preferential claim for VAT, PAYE and employee NIC is large enough that a CVL with full asset realisation would in fact return more to the Crown than a connected-party sale at administrator’s valuation.

Pre-pack is not phoenixing. Phoenixing is the term for an unscrupulous director writing off debt in one company and starting another with the same trading name to keep the customers and dump the creditors.

That is restricted under section 216 of the Insolvency Act 1986 and carries criminal penalties. A properly conducted pre-pack with independent valuation, evaluator opinion and SIP 16 disclosure is the legitimate, supervised opposite of that.

How Pre-Pack Administration Works

Pre-Pack Marketing and Valuation Steps

The administrator-designate engages independent valuers to put a number on the business and assets on a going-concern basis and on a break-up basis.

The business is then marketed, in most cases, to test whether a third-party buyer will pay more than the connected party.

That marketing is rarely a six-week public auction. It is a discreet process: industry contacts, trade-press listings, agents specialising in the sector, sometimes a confidential information memorandum to a shortlist.

The administrator must be able to explain the marketing they did, or, if they did none, why a public marketing process would have destroyed the very value they were trying to preserve.

Pre-Pack Court Application or Out-of-Court Appointment

Most pre-packs use the out-of-court appointment route under paragraph 22 of Schedule B1, where directors or a qualifying floating charge holder file a notice of appointment at court.

A court order is required only where someone is opposing the appointment or where the company is already in liquidation.

Once the notice is filed, the administrator is in office. The pre-negotiated sale contract is signed within hours. The buyer takes possession.

Trading continues under the new entity, often with the same staff at the same desks, on what looks from the customer’s side like a normal Tuesday.

SIP 16 Disclosure and the Administrator’s Pre-Pack Statement

SIP 16 is the Statement of Insolvency Practice issued by the Joint Insolvency Committee. It governs what an administrator must disclose to creditors after a pre-pack.

Within seven days of the sale, every known creditor must receive a written statement covering the source of the introduction, the marketing carried out, the valuations obtained, alternative routes considered, the consideration paid

and any connection between the buyer and the directors.

This is the document that lands on the unsecured creditor’s desk a week after the trading name they extended credit to disappeared and reappeared under new ownership. We have read several hundred SIP 16 statements over the years.

The ones that hold up are detailed, evidence-led and unflattering where they need to be. The ones that get challenged at the next creditors’ meeting are the ones that read like a brochure.

Requirements for a Pre-Pack Administration

Eligibility for Pre-Pack Administration

The company must be insolvent, on the cash-flow or balance-sheet test in section 123 of the Insolvency Act 1986, or likely to become so.

The administration must have a reasonable prospect of achieving one of the statutory purposes in paragraph 3 of Schedule B1:

rescuing the company as a going concern, or, more commonly in pre-pack, achieving a better result for creditors than immediate liquidation, or realising property to make a distribution to secured or preferential creditors.

The “better result for creditors” test is the one your administrator is documenting in the SIP 16 statement, and the one a disgruntled creditor will challenge if the case goes wrong.

Pre-Pack Evaluator Requirement for Connected-Party Sales

If the buyer is a connected party, including the directors via a NewCo, a parent company, a relative, or anyone caught by the connected-person definition in section 249 of the Insolvency Act 1986, the 2021 Regulations apply.

Either an independent evaluator must produce a report on the proposed sale, or the connected purchaser must obtain creditor approval under paragraph 49 of Schedule B1 before the sale completes.

The evaluator is appointed by the connected purchaser, paid by them, and must give a written opinion stating whether the consideration and the grounds for the sale are reasonable.

The Pre-Pack Pool, a voluntary body set up in 2015, offers evaluator opinions of this kind. Participation in the Pool is voluntary, but using a Pool evaluator is the most defensible route where the case is likely to draw scrutiny.

Crucially, the evaluator’s opinion is not binding on the administrator. A “case not made” opinion can be ignored, but the administrator must then explain in the SIP 16 statement why the sale proceeded anyway.

That is a public document, filed with Companies House. Read in five years’ time when something else goes wrong, it is the document a regulator will reach for first.

Pre-Pack Documentation and Director Disclosure

You will need to provide the administrator with:

a statement of affairs, board minutes recording the decision to seek administration, valuations of all material assets, marketing evidence, the proposed sale contract, the funding arrangement for the purchase

and full disclosure of any connection between the buyer and yourself or other directors.

Section 216 of the Insolvency Act 1986 then bites:

For five years after the company enters insolvent liquidation, you cannot be a director of, or be involved in managing, any business known by a prohibited name.

That means the old trading name, or one suggesting association with it, unless you have the leave of the court or one of the section 216 statutory exceptions applies.

Pre-pack purchasers commonly rely on the section 216(3) exception, which requires notice to creditors and a 28-day window. Get this wrong and you have committed a criminal offence and can be made personally liable for the new company’s debts.

Costs, Timescales and Outcomes of Pre-Pack Administration

Pre-Pack Administration Costs and Funding

Pre-pack administration is not cheap.

Administrator fees on a small to mid-sized case typically sit between £15,000 and £50,000 plus VAT, depending on complexity, secured creditor consent, and whether the administration runs into a CVL afterwards.

Independent valuer fees, evaluator fees if connected, legal fees on the sale contract, and Land Registry or Companies House disbursements all sit on top.

Those costs come out of the administration estate before any unsecured creditor sees a penny. In practice they often consume most or all of the realisation.

The director buying back the business funds the purchase price separately, usually from a director loan into NewCo, asset finance against the equipment, invoice finance against the new ledger, or a combination.

Pre-Pack Timeline From Instruction to Completion

From first instruction of an IP to completion of sale is typically four to eight weeks, dominated by the marketing window, the valuation work, and the secured lender’s consent process.

The administration itself, once entered, has a statutory eight-week window for the administrator to send creditors their proposals under paragraph 49 of Schedule B1.

The full administration commonly runs six to twelve months before exiting into a creditors’ voluntary liquidation under paragraph 83.

Outcomes for Creditors and Directors After a Pre-Pack

The Insolvency Service has historically reported that around 80% of pre-pack administrations save jobs, on the basis that the business continues trading under new ownership. That figure is real and matters: a pre-pack that preserves 30 staff jobs is not a small thing.

The figure for unsecured creditor returns is less comfortable.

Outside the secured lender, preferential claims rank next. These are employee wages capped at £800 under Schedule 6 of the Insolvency Act 1986, holiday pay, and the Crown preference for VAT, PAYE and employee NIC reinstated on 1 December 2020.

Unsecured creditors typically receive single digits in the pound, sometimes nothing at all once administration costs and the prescribed part (capped at £800,000 against floating charges since 6 April 2020) are accounted for.

This is the asymmetry at the centre of every pre-pack. The business survives by ending the company. The lights stay on; the debts do not.

Whether that is fair depends on whether a CVL or a public administration would have returned more, and that is the question the SIP 16 statement and the evaluator’s report are built to answer.

Alternatives to Pre-Pack Administration

CVA as an Alternative to Pre-Pack Administration

A Company Voluntary Arrangement keeps the same company alive, restructures the unsecured debt over three to five years, and pays creditors a defined dividend out of future trading profits. It needs 75% creditor approval by value.

It works where the business is fundamentally viable and the debt overhang is the only obstacle, and where directors want to keep the same legal entity, the same VAT registration, the same trading history.

It does not work where the supplier base will not extend further credit to the existing entity, where the trading name is already commercially damaged, or where the cash-flow forecast will not support a five-year contribution.

Trading Administration as an Alternative to Pre-Pack

A standard, non-pre-pack administration is the same statutory regime without the pre-arranged sale. The administrator takes over, trades the business while running a public marketing process, and sells either as a going concern or in pieces.

It produces a more transparent process and usually a better evidenced sale price, but the business is exposed to the market for weeks while customers, staff and suppliers all know it is for sale.

Value bleeds away during that window, sometimes severely.

When to Choose Liquidation Instead of Pre-Pack

Where the business has no real going-concern value, or the directors do not want to continue trading, a Creditors’ Voluntary Liquidation is cleaner, cheaper, and avoids the connected-party scrutiny that follows a pre-pack.

The assets are sold piecemeal at break-up value, and the company is wound up. We see this most often where the director is exhausted, the trading rationale has gone, and the right answer is to close, not to rebuild.

Across all three alternatives, our broader page on company rescue solutions sets out where each route fits and where the directorial trade-offs sit.

Your Next Step on Pre-Pack Administration

A pre-pack genuinely helps where the business has measurable going-concern value, the staff are worth keeping, the customer relationships will move with the team, and the directors are funding the purchase from sources independent of the failing company.

In those cases, you preserve real economic value and unsecured creditors get a defensible answer in the SIP 16 statement on why this returned more than the alternative.

A pre-pack does not help you, and in many cases makes your position worse, where your real motivation is to shed unsecured debt and carry on with the same customers under a new banner.

The connected-party scrutiny, the section 216 prohibition on prohibited names, the evaluator’s opinion sitting on the public record, and the personal exposure if the new company fails inside two years are not theoretical risks.

They are the standard endpoint of pre-packs that should never have been done.

Be honest with yourself before you ring an IP. If the answer to “would a third-party buyer pay more than I am paying?” is yes and you cannot say why a sale to you returns more to creditors than a sale to them, the case for a pre-pack is weak.

If the answer to “could the business actually trade out under a CVA?” is also yes, you may not need a pre-pack at all.

If a pre-pack is the right answer for your company, do it properly: independent valuations, marketing evidence on the file, an evaluator’s opinion on the connected-party sale, full SIP 16 disclosure, and section 216 compliance from day one.

Call us free on 0800 074 6757 for a confidential review of where your case actually sits, and we will tell you honestly whether your circumstances meet the bar.

Frequently Asked Questions About Pre-Pack Administration