Birmingham 0121 728 5581

Bristol 0117 332 3844

London 0203 667 8693

Manchester 0161 537 2702

Southampton 0238 235 8122

What actually happens?

What actually happens?

  • The directors instruct an IP of their own choosing to help place the company into administration.
  • In a pre-pack scenario the IP recommends professional agents to help market part or whole of the business for sale prior to administration.
  • A buyer is found and a sale contract is drafted.
  • The administrators are appointed.
  • The administrators then take control and immediately complete the sale contract on appointment.

When we first meet with the directors of a business we assess their finances, ask them what their objectives are and then go through the options available to them. If the company has a good core business but needs to reduce its liabilities in order to survive then we may suggest a pre-pack administration. It may also be very close to running out of money and cannot continue trading as it is.

There are special regulations covering pre-packs because of the controversy caused by a very quick sale of the business often to the same directors who ran it before (see SIP 16  and the Pre-Pack Pool).

To comply with these rules we instruct an independent valuer and business agent to value the company assets and market them for sale before the pre-pack happens. This is carried out confidentially in order to maintain employee and customer confidence but has to be enough exposure to the market to have a proper go at trying to actually sell the businesses. Often this is a balance – the directors want very limited marketing because of the reputational damage but we need to make sure it is being sold at a fair value.

The agent we use invites bids to be received by a deadline of noon usually within two or three weeks. Offers can be made by anyone including the current directors.  Very often there will be a number of bids. The offers are assessed and the agent will recommend the best offer to accept.  A sale is then agreed with a completion date set for the date of administration. Hence the term pre-pack. It has all been lined up to happen and is “pre-packaged”.

At the date of transfer, the new company takes over and continues to trade as seamlessly as possible.  We meet with the employees and explain their rights because of the transfer of employer. We also write to all of the creditors within a week advising them of the sale and asking them to confirm how much they are owed.

Within ten weeks from the date of the administration we usually hold a creditors meeting. The directors would normally attend this meeting and all creditors are invited to attend.  At this meeting the formal strategy is discussed and the outcome is decided as to what will ultimately happen to the company.  This could be:

If the only person who will be paid out of the administration is the bank then we do not normally hold a creditors meeting unless asked to do so by at least 10% of the creditors.

Initially suppliers (the creditors) who are owed money are quite upset when they find out about the pre-pack after it has happened. I can see why – quite often the same directors are just running the same business. A pre-pack needs to be very carefully considered and justified before it can be used and that there was no better alternative.

David Kirk ACA FABRP

David Kirk

David Kirk is a Chartered Accountant and Licensed Insolvency Practitioner.
Read More

Business Rescue
“At the initial meeting you told us the good and bad things that can happen and were honest and told us to watch out for. No one else had done that.”
J White
Business Recovery
"We were cornered and thought it was the end of the business after 20 years but he got us out of it."
Lynne Firman of Just Beds Ltd
Business Renewal
“You made a very difficult time much easier for us.”
R Johns
Business Renewal
"It was a very difficult decision to make to go into Administration but now I am so glad we did it. David and his team were great thank you."
Jacci Dellaway of Baylift Services Ltd
Business Rescue
"David Kirk helped us with an Administration to rescue the business. He did exactly what he said he would do. It has worked out very well."
Chris Pratt of Elecsis Ltd