A guide, not advice. This explains how things generally work. A licensed insolvency practitioner will tell you what applies to your company or to you.
What is a pre-pack administration?
A pre-pack administration is where the sale of an insolvent company's business is negotiated before an administrator is appointed and completed immediately on appointment - preserving the value, jobs, and trade that a drawn-out public insolvency would destroy.
In this guide you'll learn how a pre-pack works, the rules that govern sales to connected parties, whether directors can buy the business back, and the questions creditors are entitled to ask.
Pre-packs are lawful, regulated, and often the best available outcome - but they're also the most scrutinised transaction in insolvency, so it's a good idea to understand the safeguards before assuming one is right for your company.
Why do pre-packs exist?
Some businesses evaporate the moment insolvency becomes public - customers leave, staff resign, contracts terminate, and work in progress loses its value within days.
For those businesses, a conventional administration marketing period destroys the very value it's trying to sell - so the sale is arranged confidentially in advance, and executed the moment the administrator takes office.
The result creditors are asked to accept: a completed sale at a price the administrator must justify as the best reasonably obtainable, in exchange for the business, jobs, and often ongoing trade surviving.
How does the pre-pack process work?
The sequence: directors take advice as insolvency becomes clear; the business is valued independently and marketed so far as confidentiality allows; a buyer is identified and terms agreed in principle; the company enters administration; and the sale completes immediately, with the administrator then reporting fully to creditors on what was done and why.
Throughout, the prospective administrator is bound by professional standards (including the profession's specific pre-pack rules) requiring independent valuations, genuine consideration of alternatives, and detailed disclosure to creditors after the event.
Can directors buy the business back?
Yes - sales to connected parties, including the existing directors, are permitted and common - but they carry an additional mandatory safeguard.
A connected-party purchaser in a pre-pack must either obtain an independent evaluator's report on the deal or have creditors approve it - the administrator cannot simply wave the sale through.
Practical realities for directors considering it: the purchase must be funded with real money (the old company's assets can't pay for themselves), the price is set by valuation rather than sentiment, and the restrictions on reusing the company's name apply and carry personal liability if breached.
What happens to the old company and its debts?
The selling company remains in administration, holding the sale proceeds, which are distributed to creditors in the statutory order - after which it typically moves to liquidation or dissolution.
Debts stay with the old company; the buyer takes the business and assets it paid for, plus employees, who usually transfer under TUPE with their rights intact.
Directors' conduct in the old company is reviewed exactly as in any insolvency - a pre-pack is not a way around the conduct review, and transactions before the appointment get particular attention.
When is a pre-pack the right route?
The honest tests: the business has genuine going-concern value that public insolvency would destroy; a credible funded buyer exists (connected or otherwise); and the deal beats the alternative outcomes for creditors - the statutory comparison the administrator must evidence.
Where those aren't met, a conventional administration sale or a Creditors' Voluntary Liquidation is usually the better and cheaper answer - our comparison of liquidation vs administration covers the wider decision.
Where can I get advice on a pre-pack?
Timing is everything in a pre-pack - the option exists only while there's still a business worth buying.
Call our licensed insolvency practitioners in Manchester on 0333 023 5090 - a confidential conversation with an ICAEW-licensed IP about whether your business could support a pre-pack, and what the realistic alternatives look like.
InsolvencySupport.co.uk is operated by Xeinadin Corporate Recovery Limited (company no. 11415156), 8th Floor, 100 Barbirolli Square, Manchester M2 3BD. Our insolvency practitioners are licensed and regulated by the ICAEW.
This article is intended for general information purposes only and does not constitute financial, legal, or professional advice. Always take advice from a licensed insolvency practitioner about your specific position.
Reviewed by Alan Fallows, Licensed Insolvency Practitioner, ICAEW.