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Pre-Pack Administration – What you need to know

A Pre-Pack Administration is where the buyer of the business has been agreed before the date of the Administration order. On the date of Administration the business is sold and then the majority of the creditors, shareholders and employees are notified after the event. Pre-packs were designed to preserve the value of the business by allowing a very quick sale.

The sale must be at a fair market value and this is often to the existing directors or shareholders which is completely legal.

 

WHEN SHOULD A PRE-PACK BE CONSIDERED?

A Pre-Pack Administration is a very useful way to rescue a business that has a high value of goodwill that would lose value over a short period of time.
A good example of a business that is suitable for a pre-pack is one that relies on employees who have a detailed knowledge of the business and clients and customers who would leave if there was uncertainty.
The overall objective to a pre-pack is that it should give a better return to creditors.

 

THE BENEFITS OF A PRE-PACK ADMINISTRATION

Pre-Pack Administrations are very quick to arrange which can stop clients or customers leaving, it also makes the change in ownership as seamless as possible. From the first meeting to the completed sale a Pre-Pack Administration can take just one week to complete.

“PRE-PACKS WERE DESIGNED TO PRESERVE THE VALUE OF THE BUSINESS BY ALLOWING A VERY QUICK SALE.”

 

THE PRE-PACK PROCESS

When entering a Pre-pack you will need to choose a suitably qualified and experienced licensed insolvency practitioner. Your accountant or solicitor should be able to recommend one.
The licensed insolvency practitioner, who is the proposed administrator, will help you through the process. In summary the administrator will:

  • Request a balance sheet (financial snap shot) of your current finances including what you own and what you owe
  • Request information including; employees details, cash flow projections and reasons why the business has gotten into trouble
  • Instruct an agent to prepare a sales pack and market the business
  • This may mean full marketing with adverts in the press or more discreet marketing by just targeting known interested parties
  • Set a date for best offers and when they come in for the agent to recommend the best one
  • Instruct a solicitor to prepare a sale agreement unless this was a very small sale
  • The buyers would normally have solicitors acting for them as well

 

Once everything is agreed, the Administration order would be applied for and the sale would complete to the owner, usually on the day of Administration.
Usually the insolvency practitioner will talk to the largest creditors by value via telephone before the sale in order to seek their approval (although they cannot block the sale).
Once the sale has completed the administrator must write to all creditors within 14 days setting out what has happened and why the pre-pack route was chosen.
This whole process can take from two week upwards.

“PRE-PACKS WERE DESIGNED TO PRESERVE THE VALUE OF THE BUSINESS BY ALLOWING A VERY QUICK SALE.”

 

A WORD OF ADVICE

Have all of your financial information together and make sure that you tell the insolvency practitioner of any impending winding up petitions and county court judgements so that they can deal with them directly.


AUTHOR: LISA THOMAS

Licensed Insolvency Practitioner at Neville & Co.

Lisa Thomas - Neville & Co

If your business is facing financial problems I can help you with clear and impartial advice on your options.
I can discuss with you the pros and cons of liquidation, company voluntary arrangements, administration or whether a time to pay agreement is more appropriate. All information given to me is confidential and no question is too stupid to ask. I will do the best I can to help.