What is pre-pack administration?
In a nutshell a pre-pack administration is where a company is put into administration and its business and assets are sold immediately after the administrator is formally appointed by the court.
Administration is a procedure whereby a licensed insolvency practitioner is formally appointed administrator by the court over a company with a view to achieving one or more of three statutory objectives:
- Rescuing the company as a going concern
- Getting a better result for the company’s creditors than they would have received had the company entered liquidation instead
- Realising the company’s assets in order to pay any secured and/or preferential creditors
If there is a business to be rescued ordinarily the administrators will trade the business post appointment in order to be able to sell part or whole of the business as a going concern and maximise realisations.
However there is no guarantee a buyer will be found and the costs of an administrator taking control and trading the business will be expensive.
A pre-pack administration is the very similar the administration procedure except that with a pre-pack administration the sale of the assets/business are lined up prior to the administration and the sale usually completes immediately upon the administrators appointment avoiding the need for the administrator to trade the business.
In a pre-pack scenario a buyer may already have been identified or professional agents can carry out a discreet marketing campaign to find a buyer before the planned administration takes place.
Contracts are drafted and agreed. As soon as the proposed administrator is appointed the contracts are completed, usually on day one of the administrators appointment.