Pre-pack Administration

Pre-pack administration is a type of company administration process, where the sale of a business and any assets are agreed prior to the administrator being appointed. This differs from the standard administration process where part of the administrator’s role is to market the business for sale or consider alternative options if a sale is not viable.

With pre-pack administration, the business can be sold to the existing directors operating under a new company. This is usually done if the business is facing serious problems and creditor threats. The new company will need to be viable and have funding in place so it can buy the assets of the old company at fair value.

A pre-pack administration is normally only suitable for larger companies because it’s a complex and quite costly procedure – and it works best where there is a severe threat to the ability of the company to be able to continue to trade. For example, where a critical supplier may withdraw support or there is a threat of a winding up petition.

In the case of a pre-pack administration, the administrator sells the business before the creditors have an opportunity to say if they approve (or not) of the sale transaction. It is this aspect that can cause controversy. However, there must be a viable business there that someone is willing to fund, even if the company cannot continue in its present form.

Pre-pack administration is not subject to many rules in The Insolvency Act 1986, but insolvency practitioners must follow detailed rules set out in a regulatory document called Statement of Insolvency Practice Number 16 (SIP 16) before implementing the process.

The SIP 16 Statement ensures that the administrator is transparent about the transactions that have taken place under the agreement. Post sale, the administrator must immediately inform all creditors of the sale.

Pre-pack administration works best if your company is overloaded with debt, as the process permits an organised and pre planned restructure of your company’s affairs, and often involves getting rid of substantial amounts of debt.