Pre-pack administration is an insolvency procedure in which a company arranges to sell all or some of its assets to a buyer before appointing an administrator to facilitate the sale. It differs from conventional administration in that the sale of assets is pre-negotiated before an administrator is appointed, whereas in a regular administration the administrator starts marketing the business after being appointed.
Pre-pack administration often involves selling the business and assets of the old company to its current directors, who then form a new company. The assets, work in progress, debtor book can all be paid for over a period of time.
By law the administrator must be a licensed Insolvency Practitioner (IP). However, the company directors can participate in soliciting an asset purchaser to expedite or enhance the sales process, or as mentioned, they can purchase the assets themselves through a new company.
Your Company is under Creditor Pressure and Needs Assistance - Directors are dealing with hostile creditor pressures and the business is facing the possibility of an undesirable outcome like receivership/liquidation. Realising that the directors could be held personally liable if the appropriate action is not taken you decide to contact a qualified Insolvency firm for advice.
We Conduct an Initial Consultation and Examine Options - You’re given the opportunity to discuss the situation with a competent advisor, who may ask you for additional data in order to make the most suitable recommendation. We assess your company’s operations, assets, and outstanding debts, and decide whether pre-pack administration is the best course of action. If it is not, we may recommend another solution like a company voluntary arrangement (CVA), voluntary liquidation, or standard administration. Once a plan is devised you’ll be given an estimate of how much the procedure will cost.
IP Conducts Asset Valuations and Creates an ADMIN Proposal & Statement of Affairs - If pre-pack administration is ideal, and you choose to appoint one of our IPs as the administrator, they’ll then begin the preliminary process by determining the value of your company’s assets, creating a statement of affairs, and drawing up an official Admin proposal.
IP is Officially Appointed and the Old Company Enters Administration - After the court receives the administration statement the IP is officially appointed and a moratorium is put in place so that all legal actions are stayed, thus protecting the old company from the enforcement of floating legal charges during the administration process. Immediately the old company’s assets are sold and legally transferred to the new buyer.
Creditors’ Meeting is Held - After the sale of assets is complete the administrator holds a meeting with the old company’s creditors to give a thorough explanation of why the pre-pack administration was undertaken. Although it is not necessary to seek consent from creditors prior to the sale of assets, during the post-sale creditors’ meeting the IP is legally obligated to disclose certain information, as mandated under SIP 16 Disclosure Requirements.
In most cases the administrator will recommend that the old company be liquidated during the creditors’ meeting. If the creditors consent to this then the old company undergoes a creditors voluntary liquidation (CVL), during which the rest of its assets are liquidated to repay as many leftover debts as possible.
The administrator cannot distribute any funds back to the creditors whilst the company is in administration. A company cannot stay in administration indefinately so an exit route for the company needs to be plannedit could be liquidation, CVA, dissolution in order for the IP to distribute the available funds back to the creditors on a pro-rata basis.
It should be noted that the pre-pack administration process has sparked controversy in recent years, as critics say it leaves unsecured debts unpaid. However, when a company enters into a pre-packaged sale they’re usually not in a position to repay debts, and that point liquidation and administration are the only options left anyway. In other words, the unsecured creditors would have inevitably gone unpaid regardless of whether the company underwent pre-pack administration. In fact, a pre-pack administration followed by liquidation of the old company is often the most beneficial outcome for both creditors and the directors/employees of the insolvent business.
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