Pre packaged administration involves the sale of a company’s assets and business to a new purchaser immediately prior to, or on appointment of an insolvency practitioner as administrator. This process has been criticised for its lack of transparency and inclusivity, particularly amongst unsecured creditors. It has also been seen to have a significant impact on the value of a brand.

There are several advantages to a pre-pack administration; the speed of sale means that asset values can be preserved, jobs saved, and commercial momentum maintained through largely uninterrupted customer service and continuation of supplier contracts. This can also help minimise the impact of a company’s insolvency on its reputation and public perception. Old contracts can also be terminated, which frees up cash flow for the new company and potentially allows a more lucrative return on its investment.

Unraveling Prepackaged Administration: Insights and Implications

Employee rights are normally transferred to the new company, with the insolvency practitioner helping to manage this process. This can be a stressful time for employees, but they are protected under the Transfer of Undertakings (Protection of Employment) Regulations. However, a pre-pack administration still leaves the new buyer with a large debt burden and may not address the root causes of the insolvent company’s financial distress.

There are a number of rules governing pre-pack sales, including disclosure requirements for administrators and restrictions on the sale of a company to anyone who is ‘connected’ with it. Insolvency experts can guide directors through these rules and through the decision process around whether a pre-pack is right for their business.