What is a pre-pack administration?
A pre-packaged (or ‘pre-pack’) administration, is an arrangement for the sale of all or part of a company, this can include business and assets. This is negotiated with a purchaser prior to the appointment of an administrator, following which the administrator effects the sale immediately on, or shortly after, appointment. They are a means by which administrators realise the assets of an insolvent company.
Who decides if a business is suitable for a pre-pack sale?
Pre-pack sales are executed by administrators, who must be qualified to act as licensed insolvency practitioners. They are required to exercise commercial and professional judgement in deciding how best to realise the assets of insolvent companies and maximise the return to creditors.
What are the benefits of pre-pack sales?
Pre-pack sales are generally executed before the insolvency of the company becomes widely known – this can preserve asset values and jobs that may otherwise be lost, and can help to enable a viable business to continue.
Who can appoint an administrator?
There are three different ways an insolvency practitioner can be appointed as an administrator of a company. An administrator can be appointed by either;
- Director or
- Charge-holder or
Will creditors receive any money?
Whether creditors receive any payments for debts outstanding depends upon the amount realised within the administration. When paying out funds to creditors there is an order of priority and unsecured creditors rank last behind preferential creditors (e.g. employees) and those who hold security. Once appointed, an administrator is required to send their proposals to creditors within 8 weeks of appointment. This will contain information about the prospects of payment to creditors. It is an unfortunately reality of insolvency and creditors will often not receive funds in full for outstanding balances to them from the company.
Can the new company have the same directors and shareholders?
Yes, they can. It is quite common that the best offer for the business or assets of an insolvent company may be from the existing directors or management team. There is no law that specifically prevents a director of a company that has gone into insolvency from forming a new company, provided they are not disqualified, personally bankrupt or the subject of a bankruptcy restriction order or undertaking. There are, however, measures in place to ensure that the privilege of limited liability is not abused.
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