HOW PRE-PACK ADMINISTRATION WORKS
This is where a company has been talking to a potential buyer of the business and has instructed a proposed Administrator before appointment so that on the day of Administration the business is sold to a new owner.
Nothing quite upsets creditors like finding out, on the day a company goes into Administration, that it has already been sold and it is too late to block the sale or make a counteroffer. However, it is a perfectly legal process if done properly.
SIP 16 Rules and the Evaluator
Rules were brought in by Statement of Insolvency Practice 16 about the procedure to be followed in a pre-pack sale including, the need to advertise the business for sale beforehand, to get the best price, and to report to creditors in full shortly after the sale (within a maximum of 14 days).
New rules were also brought in from 30th April 2021 making it mandatory to have the proposed pre-pack assessed by an independent ‘Evaluator’ before it goes ahead.
The Evaluator is chosen by most Directors is the www.prepackpool.co.uk. The Pool will evaluate the pre-pack Administration in 48 hours and charge a fixed £1,500 plus VAT. Interestingly, even if the evaluator disapproves of the pre-pack Administration it can still go ahead, but the Administrator will have to be careful and expect to carefully justify why the sale went ahead.
Pre-pack Administrations are often used by a secured lender such as a private equity investor or venture capitalist to move the secured assets from one company to another leaving behind the unsecured debt like suppliers, business rates, VAT and PAYE. It may seem wrong but if done properly is a useful tool to save a viable business within a struggling company.
- A proposed pre-pack Administration business must be advertised for sale.
- An Evaluator will be needed to give an independent report on the proposed sale.
- Creditors must be sent a detailed report within 14 days of the sale.
- Creditors do not like pre-packs.
David Kirk did exactly what he said he would. I’d be lost without Administration. Without David, we would have gone bankrupt by now. Really good