Pre Pack Administrations
A Pre Pack Administration is a type of insolvency whereby an arrangement to sell the business is made before administrators are appointed.
As with the standard Administration process, Pre Pack Administrations are often sought by companies hoping to be rescued as a going concern or those seeking a better outcome for creditors than that offered by alternative procedures, such as the company winding up.
The key difference between standard and Pre Pack Administrations is the point when the business sale takes place. In the former, the sale of the business is handled by Administrators once they have been appointed. However, the latter sees the sale of the business and assets take place before they are appointed, allowing for completion immediately upon appointment.
When is a Pre Pack Administration the right option?
A Pre Pack Administration won’t work for every business. One of the main criteria is that it must be in the best interests of the creditors, and that the assets must be worth enough to pay any secured creditors. It is also possible that a Pre Pack Administration would work for an insolvent company unable to pay unsecured creditors. However, this would only be the case if the unsecured creditors would otherwise lose out.
If the Pre Pack Administration route is taken and a new company created, the directors should be willing to explore different business models. This form of Administration can provide the perfect opportunity for the development of a new turnaround strategy with the benefit of hindsight.
The main advantages of a Pre Pack Administration compared with the standard alternative are:
- The business is sold as a going concern without impacting on operations once an administrator is appointed
- Jobs are less likely to be lost
- The value of assets are preserved thanks to the advanced sale – the business will be sold at market value
- Early sale often results in higher return for creditors
- Losses are prevented – trading via Administrators could lead to reduced revenues
- The business brand is less likely to be compromised by negative publicity
- It’s more likely the business will be purchased by an appropriate and carefully chosen buyer, if not sold into a new company with the same directors
- A new company could continue trading from the same premises
If you’re wondering whether a pre pack administration might be a solution for your company, please schedule a confidential chat with one of our senior advisers.