A ,pre-pack administration, or ‘pre-pack sale’ as it’s sometimes referred to, involves the pre-packaged sale of a business and its assets shortly after an administrator is appointed. Negotiations leading to the sale are arranged before the company goes into administration. This means that the business is effectively sold before the administration is announced.

Pre-pack administrations have been developed by the insolvency profession as a highly successful means for protecting, as far as possible, the business and employees of a company that is in severe financial difficulty. However, in spite of the positive help that pre-pack sales can offer to businesses, they often receive a very negative reputation. Sometimes creditors and stakeholders feel concerned that the speed of the transaction may have limited the marketing of the business. There can also be a misperception that the process lacks transparency. In particular there is concern that the negotiation may come from directors of the business or from people connected to it.

New regulations for pre-pack administrations

,The Administration (Restriction on Disposal etc to Connected Persons) Regulations 2021 (ARR2021) were introduced from 30 April 2021. The new regulations do not mention pre-pack sales specifically, however include all substantial assets that are made to a connected party within eight weeks of the administration. This will include all pre-pack sales to connected persons, and is likely to include most going concern sales in administrations.

With these new regulations, pre-pack sales to connected persons may only take place within eight weeks of administration so long as the sale has been approved by creditors, or if the proposed sale has been reviewed by an evaluator.

What’s the role of an evaluator?

The evaluator is a new role that was introduced with the ARR2021. The evaluator is an independent individual who produces a qualifying report that evaluates whether or not the proposed sale is reasonable and should be sanctioned. This acts as a more efficient and reliable way of approving the sale of assets to connected persons in pre-pack administrations. As a result, it should help creditors to have more trust in pre-pack sales to connected persons.

The new regulations should help to ensure that pre-pack administrations are fair for all parties and stakeholders involved. With this in mind, let’s take a closer look at what the process of a pre-pack administration involves.

What happens when a company goes into pre-pack administration?

Once a licensed insolvency practitioner determines that the best option for a struggling business is to generate the sale of the business and it’s assets, the process begins. Using information that they have gathered, the insolvency practitioner will market the business via a discrete advertising campaign. If any party shows interest, the practitioner will negotiate with said party to agree on a sale. This part of the process will be assisted by a qualified RICS accredited agent and a solicitor. The goal of the process is for a sale agreement to be drafted before an administrator is appointed. Once an administrator is appointed, the sale can be completed.

If you’d like to learn more about pre-pack administration and whether or not it may be an option for your company, please don’t hesitate to ,get in touch with us.