A Pre-Pack Administration is a way to sell a struggling business quickly, often to a new buyer or even the existing directors. It happens immediately after the company enters Administration, giving the buyer a clean start while protecting jobs and preserving value that might otherwise be lost in a drawn-out process.
For many directors, this can sound like a lifeline, a way to save what’s viable from the business before creditors or the courts intervene. But it’s also a tightly regulated process, designed to ensure transparency and fairness for creditors.
How a Pre-Pack Administration works
A Pre-Pack Administration begins like a standard Administration: the company is insolvent or under severe creditor pressure and a licensed insolvency practitioner (the administrator) is appointed to take control.
What makes a Pre-Pack different is the speed and planning. The sale of the company’s assets, or sometimes the whole business, is agreed before the company formally enters Administration. Once appointed, the administrator immediately completes the sale.
This approach can protect value that might otherwise be lost if the business stopped trading or word of insolvency spread. The process typically follows these stages:
- Early assessment: The insolvency practitioner reviews the company’s financial position and potential sale options.
- Valuation: Independent valuations are obtained to confirm fair market value for any sale.
- Negotiation: Terms of the sale are negotiated in advance, often to an external buyer or a new company (known as a “newco”) set up by existing directors.
- Appointment and completion: Once the company formally enters Administration, the sale completes almost immediately.
- Reporting: The administrator must report full details of the sale to creditors and the Insolvency Service, explaining why a Pre-Pack was chosen and how the price was justified.
What makes a Pre-Pack attractive
A Pre-Pack can be an effective tool when time is critical and value needs preserving. Common benefits include:
Business continuity: Trading can continue with minimal disruption, avoiding loss of contracts, customers and jobs.
Higher asset value: Assets sold as part of a going concern often achieve better value than if sold piecemeal in liquidation.
Reduced creditor losses: Creditors may recover more than they would if the company simply closed.
Job protection: Employees can transfer to the buyer under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE).
Fresh start: If a new company buys the assets, it can continue operations without being burdened by old debts.
For directors who genuinely want to rescue the viable parts of their business, Pre-Pack Administration can be an ethical and practical solution.
Selling to existing directors
It’s common for the buyer in a Pre-Pack Administration to be a new company (or “newco”) formed by the same directors who ran the old company. This is known as a connected party sale.
Because this can raise concerns about transparency, strict rules apply. Since April 2021, connected party sales in Administration must follow new regulations introduced under the Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021.
These rules require one of the following before a sale can go ahead:
- An independent evaluator’s report confirming the sale is fair and reasonable, or
- Creditor approval of the proposed sale.
This safeguard ensures that creditors are not disadvantaged and that any sale to directors is objectively justified.
The insolvency practitioner will handle the process, ensuring compliance and reporting the sale details to creditors.
Director responsibilities in a Pre-Pack
Directors play a limited but important role in a Pre-Pack Administration. The duties of a director include:
- Cooperating fully with the insolvency practitioner and providing accurate information.
- Ensuring that all pre-insolvency trading decisions are made in good faith and in the best interests of creditors.
- Avoiding transactions at an undervalue or any preference payment before Administration begins.
Once the administrator is appointed, control passes entirely to them. If the directors are involved in buying the business back, they must follow the proper connected party sale rules mentioned above.
The risks and downsides
While Pre-Pack Administration can protect value, it isn’t right for every situation. Risks include:
Perception: Creditors and suppliers may feel disadvantaged if they’re not repaid in full, even if the process was fair.
Scrutiny: The Insolvency Service closely reviews Pre-Pack sales to ensure there’s no misconduct or transactions at an undervalue.
Funding: Buying the business back requires available finance. Directors can’t use company assets or funds that belong to creditors.
Limited recovery for creditors: Although outcomes are often better than liquidation, unsecured creditors may still receive little or no repayment.
These risks are why Pre-Packs must be handled transparently and independently by licensed professionals.
When Pre-Pack Administration is appropriate
A Pre-Pack Administration may be suitable if:
- The company is insolvent or close to insolvency
- The business has viable operations, contracts, or brand value worth saving
- There’s an interested buyer (either internal or external)
- Immediate action is needed to stop creditor enforcement or protect jobs
If these conditions apply, a licensed insolvency practitioner can assess whether Pre-Pack Administration would deliver a better outcome for creditors than liquidation or a standard Administration.
What happens to company debts
Once the Pre-Pack sale completes, the proceeds go to the administrator to distribute among creditors according to insolvency law.
The old company (now known as “the oldco”) remains in Administration or moves into liquidation, and its unsecured debts are usually written off.
If the sale was to a newco, that company starts afresh and the old debts do not transfer. This separation helps protect jobs and assets but also makes transparency essential to avoid allegations of misconduct or “phoenixing”.
Key takeaways on Pre-Pack Administration
- A Pre-Pack Administration is a fast, planned sale of an insolvent company’s assets immediately after entering Administration.
- It helps preserve value, protect jobs and give the business a second chance under new ownership.
- Directors can buy the business back, but strict independent review rules apply.
- The process must be overseen by a licensed insolvency practitioner and justified as being in creditors’ best interests.
We can help you understand Pre-Pack Administration
If your company is under pressure but still has a viable core business, Pre-Pack Administration could be an option to rescue what’s worth saving.
Our licensed insolvency practitioners can assess your position, explain whether a Pre-Pack would be suitable, and ensure the process meets every legal requirement. Every case is unique. The key is acting early while options are still available.
Get in touch today for free, confidential advice and take back control of your company’s future.
