What is a pre pack administration is a process where the business and assets of a distressed company are sold to a new purchaser entity, which may be incorporated for this purpose or in operation as an existing business. The process is quick and effective and can help to stop clients and customers leaving, as well as allowing for a quicker return to creditors than might be possible in liquidation. Pre-pack administrations are typically undertaken where the business is insolvent and unable to pay its unsecured creditors, a winding up petition has been issued, or a major client or supplier is withdrawing support.

When might a pre pack administration be appropriate?

The main reason for a pre pack administration is to protect jobs by avoiding redundancies. The speed of the sale also allows for trade to continue largely uninterrupted, helping to preserve asset values and maintain commercial momentum via a smooth transition of customer relationships, supplier contracts and so on.

A pre pack can also be an effective way to avoid a winding up petition or delay a liquidation, especially where the directors are unsure of how they might fund a full administration via a CVA, CVL or other insolvency procedure. However, criticisms of pre pack administration sales often focus on how the sale is carried out and the lack of transparency for unsecured creditors, particularly when the new purchaser is connected to the insolvent company such as the previous management or owners.