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What is pre-pack administration?

Pre-pack administration is a formal insolvency process which involves the sale of a business, or its assets, to a connected or unconnected buyer. Pre-pack administration differs from a conventional administration process as the sale is negotiated and agreed to prior to the insolvency practitioner being formally appointed. The sale to the new company completes as soon as the formal appointment is made, and the old company will be liquidated shortly afterwards.

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What is pre pack administration? Everything directors need to know

Pre pack administration is a formal insolvency process that allows for the purchase of an insolvent company’s assets. The procedure must be carried out by a licensed insolvency practitioner (IP) appointed as administrator, but this appointment only takes place at a certain stage of proceedings to facilitate a quick sale.

This speed of sale helps to preserve asset values, save jobs, and maintain commercial momentum via largely uninterrupted customer service and continuation of supplier contracts. The assets are transferred to a new company, or ‘newco,’ and trade continues without the stress of unmanageable debt and creditor pressure.

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Businesses need to be valued before a reliable quote can be provided for pre pack administration, however, so it’s important to take care when seeking insolvency help. Real Business Rescue are licensed insolvency practitioners with extensive experience. We can offer dependable unbiased advice on pre pack administration, and help you decide whether this is the best route for your business.

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Is your company eligible for pre pack administration?

The pre pack administration process is subject to strict legislation, and the office-holder must be able to prove it offers the best result for creditors. Other eligibility criteria include, but are not limited to:

  • Official insolvency with no hope of recovery: a business is insolvent if it cannot pay its bills as they fall due – typically demonstrated by the inability to pay statutory demands in relation to debts of £750 or more. Insolvency is also evident if the company’s total liabilities, including contingent liabilities, exceed the value of its assets.
  • Assets must be sold at fair market value: existing directors can purchase the assets using their own funds as long as they’re sold at fair market value. This important aspect of pre pack administration helps to address the ethical concerns that commonly arise.

 Why choose pre packaged administration?

  • Preservation of asset values: loss of asset values often built up over years of successful trading is minimised, and jobs saved due to the speed of process. Business assets could include equipment, stock, property, staff, clients, and contracts.
  • Negative press is limited: when a company enters insolvency, the ensuing publicity can sometimes negatively affect the outcome. With pre pack administration the chances of experiencing adverse publicity are lessened.
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TUPE and pre pack administration

The Transfer of Undertakings (Protection of Employment) regulations, or TUPE, protect employee contracts during the transfer to a new company. There are strict requirements for directors acting under this legislation, both as an employer of the old and the new company.

Although jobs are often preserved with a pre pack some redundancies may be necessary and it’s how you deal with these that is crucial, ensuring you comply with TUPE regulations to avoid claims of unfair dismissal by employees.

Our insolvency practitioners have vast experience of dealing with pre pack processes and TUPE regulations. We can advise on how to remain compliant and avoid the heavy fines imposed for failing in this respect.

Licensed insolvency practitioners and their role in a pre pack

Pre pack administration has been the subject of controversy in the past because, taking a purely objective view, it can appear that directors of the failed company have simply purchased the assets of their business and moved on to a new enterprise without adequately dealing with debt.

The administrator is a key figure in the process, however, and they have a legal duty to the creditors. They are obliged to demonstrate that pre pack offers the best returns for the company’s creditors, and it is this professional assessment that helps to reduce the mistrust that sometimes surrounds the procedure.

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Sale of business assets, not the limited company

Confusion can arise over exactly what is for sale in a pre pack administration. Essentially, the old limited company is closed down at the end of the process, and it’s the business assets that are sold.

Although it may seem like the same company is trading - the staff, suppliers, and customers haven’t changed - trade is taking place under an entirely new company with a different name.

If you need help determining whether a pre-packaged administration could be the solution to your insolvency problems, or if you have any questions at all feel free to email us.

Frequently Asked Questions about Pre-pack Administrations

Why do pre-packs sometimes cause controversy?

Do the company’s directors choose the pre-pack route?

What happens to intellectual property in a pre-pack?

What’s the difference between pre-pack and normal administration?

How long does a pre-pack take?

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