Solicitor for Pre-Pack Administrations

What is a pre-pack administration?

A pre-pack administration is an insolvency procedure wherein a company’s business and / or assets are sold immediately when the company is put into administration by the administrator, under a sale that was arranged before the administrator was appointed.

When would a pre-pack administration be appropriate?

Pre-pack administrations can be appropriate when the company is struggling and may not be able to continue to trade. The company needs to have a viable business, that someone is prepared to fund.

Benefits

• A pre-pack sale can enable a smoother transition of the business, as opposed to transferring the business after the administration order.

• This can in turn lessen the effect on the confidence of the business’ customers and suppliers.

• Pre-pack administrations have the potential to save more jobs.

Downsides

• There is no obligation to inform unsecured creditors and so often they have no opportunity to examine the proposal.

• The sale of the business may not be advertised to the same extent, meaning maximum returns may not be realised for the creditors.

• Creditors can be suspicious when the business is sold back to the same directors and shareholders. This can be seen as ditching the debts of the old company and is comparable to a ‘phoenix’ company.

• It may just be a short-term fix – the new company needs to ensure it can survive in the long run.

Considerations for Administrators

Under the Statement of Insolvency Practice 16, administrators should comply with certain guidelines. For example, an administrator should disclose certain information to the creditors within seven days of the proposed pre-pack sale.

Considerations for Directors

In order to avoid later being found liable for wrongful trading, directors need to make sure their actions are for the benefit of the creditors when a company is insolvent. This is the case when considering a pre-pack administration. To ensure that they do so, it is advisable to seek independent legal advice.

Considerations for Creditors

If a creditor is unhappy with a pre-pack administration, they may be able to challenge it in the following ways:

• Challenge the administrator’s conduct of the company;
• Bring an action for misfeasance against the administrator; or
• Use the Insolvency Service’s complaints gateway.