Insolvent businesses are often sold before their administration is even announced. This is called pre-pack administration – a process where directors can enlist the services of an Insolvency Practitioner to find and negotiate a viable sale which is then finalised when an Administrator is appointed. While this can be a valuable rescue option for struggling businesses, it is important to note that the company directors and appointed Insolvency Practitioner are duty-bound to act in the best interests of creditors when a pre-pack sale is being explored.
Following a 2014 review of the pre-pack administration process, changes were made to ensure obligations to creditors are adequately met when a sale is proposed. In many cases, creditors felt that transparency was lacking when the buyer of the business had a pre-existing connection to or relationship with the company. As a result, the ‘Pre-Pack Pool’ was introduced: an independent body of experienced businesspeople who can offer an independent opinion on/endorsement of a pre-pack sale where connected parties are involved.
What Does The Pre-Pack Pool Do?
For the Pre-Pack Pool to provide an opinion, the connected party involved in the proposed sale must make an application to the pool via an online portal. When appointed, one member of the Pool will then evaluate the information provided and give an opinion on the sale, usually within 48 hours. It currently costs £1,600 plus VAT to make an application.
There are three possible verdicts that can be given by the Pool and evidence will be provided to demonstrate why they have arrived at the chosen verdict:
- That they have been given enough evidence to conclude that the sale of the business to a connected party is reasonable.
- That not enough evidence has been provided to make a reasonable judgement.
- That the evidence provided suggests that it is not reasonable to sell the business to the connected party.
It is important to note that the outcome of a Pre-Pack Pool evaluation does not determine whether or not the sale can proceed. The final responsibility for a sale falls on the Administrator.
Is It Mandatory To Consult The Pre-Pack Pool?
Consulting the Pre-Pack Pool can be a valuable way to enhance communication and confidence between stakeholders when a pre-pack sale is taking place. However, despite the obvious benefits of seeking an independent and external opinion, it is not mandatory to consult the Pre-Pack Pool ahead of an administration. This resulted in low numbers of applications being made when the Pool was first introduced.
Since 2021, new rules have applied to Administrations which has led to increased demand for the Pool’s services. Now, in cases where an Administrator wishes to dispose of business assets to a connected party within 8 weeks of administration, one of the following assurances must be made:
- The administrator obtains written approval from the creditors prior to completion of the sale.
- The buyer receives a ‘qualifying’ report from an evaluator which judges whether the business sale is reasonable.
The Pre-Pack Pool can act as the Evaluator and Insolvency Practitioners are obliged to let connected parties know that the services of the Pool are available to them. However, it is still not mandatory to choose the Pool if there is another appropriate party available to the buyer.
At Ballard Business Recovery, we understand that there is a lot to understand if you or your client are considering a possible pre-packaged sale as part of an administration. For this reason, it’s important to speak to someone you can trust and get advice that makes both your rights and obligations to creditors clear. If you have any questions about the role of the Pre-Pack Pool or need to appoint an Insolvency Practitioner to help your business, don’t hesitate to get in touch with our team. With years of experience, we are on hand to guide you through your options.
