The Compendium

Effectively, it is a legal way of selling the business on to a third party, a ‘Newco’, or to the existing directors if the business is facing serious problems and creditor threats.

The main advantage of a pre-pack is continuity of the ‘business’… … the company is protected by the court while the Administrator sells the ‘business and assets’ (not the actual ‘company’) to the new owners. This gets rid of debts, unwanted or onerous contracts, and employees (in certain circumstances there could be TUPER issues that need to be addressed) … … and there need be no interruption to the business, which in itself can affect customer loyalty, the brand and the goodwill of the business.

Another big advantage of a pre-pack is that the cost of the process is lower than most other options. An Administrator does not need to .nd funding to trade the business.

The process, including the preliminary marketing, valuation work and discussions with creditors, can be very quick and done and dusted in a couple of days, if necessary.

Pre-packs preserve more jobs (because of TUPER) than if the company ceased trading.

The reality of a business going through insolvency is that the creditors very rarely receive all of the money owed to them. It is therefore more appropriate (and helpful) to consider what creditors might reasonably expect in a distressed situation, rather than the total amount they are owed.

The fact that the business is sold on a ‘going concern basis’ means value is retained and realisations are higher. That in turn means better returns to secured creditors and others.

Because everything is negotiated quickly and without much outside interference the IP’s fees are much lower in a pre-packaged Administration.

The Statement of Insolvency Practice (SIP) that deals with pre-packs is SIP 16.

[See ‘Administrator’, ‘Insolvency Practitioner’, ‘IP’, ‘TUPER’, ‘Statement of Insolvency Practice’ and ‘SIP’.]