What is a pre-pack administration sale?
A pre-pack administration sale involves a sale of a company under administration’s business or assets, or both, which will have been arranged in advance of putting a company into administration. As soon as an administrator is appointed over the firm in administration, once an administration order is made, they will act to quickly close the sale so that the business under administration incurs minimal costs of trading once in administration, and putting a company into administration causes the least disruption to the company under administration and its creditors as well as the employees of the company under administration.
Advantages of a pre-pack administration sale
One of the key problems with a company insolvency is that as soon as creditors of a firm in administration realise that the company may have company insolvency issues, they are often reluctant to continue dealing with the business under administration, and this can have disastrous consequences for a business that already has company insolvency problems.
The benefit of the pre-pack administration negotiation is that this is usually reached in confidence. This can avoid spooking key employees and prevent them from jumping ship and allow the possibility of negotiation of an ongoing supply with key creditors and those buying goods from a company in administration.
Points to note in a pre-pack administration sale
Quite often a pre-pack administration sale of a company under administration will be made to existing directors. It is essential that formal valuations are made of the assets and goodwill of the business under administration, and any prepack administration sale agreed must be in line with independent valuations of the assets of the business under administration.
The commercial reality of company administration is that often a business under administration is unlikely to be sold to a third party if it already has company insolvency issues. The advantage of a pre-pack administration sale, often to existing directors, is that putting a company into administration can still allow for a rescue of the viable parts of the business under administration and to the continuation of some of the business under administration and employment contracts.
Contact the company administration experts today
At Francis Wilks & Jones our expert legal team frequently advise and act on pre-pack administration sales and have a wide range of experience in company administration matters. Call us to discuss your situation so that we may discuss the options with you.