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What is a Pre pack Administration?

If your business is experiencing cashflow problems or threats from creditors i.e. trade suppliers, landlords or HM Customs and Revenue, a pre pack administration is a formal insolvency procedure under the Insolvency Act 1986 designed to allow a sale of the business to a new entity including the existing directors or management.

The sale is known as a “pre pack” as it takes place at the same time as the company goes into administration, preventing a break in trade. The new company is then free to trade without the liabilities of the old company.

There are some important points which must be considered by both the directors and the administrator. These are governed by Statement of Insolvency Practice 16 (see below) and our Jennison team will explain these to you.

 

Why use Jennison Insolvency?

 

1. No upfront fee

2. Professional service pan>

3. Quick and easy process

4. We have considerable experience having undertaken over 150 administrations

5. We can assist the new business with funding / finance

6. Jennison’s Insolvency Practitioners are chartered accountants and Insolvency

specialists

7. Nationwide service

Call our Administration team on 0800 107 8788. There is no charge to speak to us or to ask some questions.

Click here to read our Pre pack case study

What are the steps to undertake a Pre Pack Administration:

 

• If your company is experiencing financial difficulties you must take advice from an Insolvency Practitioner
• The Insolvency Practitioner (IP) will review the financial status of the business to confirm that it is insolvent.
• The IP will instruct an independent agent to value the business’ assets.
• The business will need to be marketed for sale to ensure that the best price is received for the business and assets.
• The IP will set a deadline for offers (this is likely to be in a very short time frame so it won’t affect ongoing trading).
• This is the opportunity for the directors, management or a third party to make an offer for the company’s assets.
• The IP will choose the best offer which is in the interests of the creditors
• The company will then go into administration, the business and assets (without the liabilities) will be sold to the best bidder, who can continue trading the company.
• The IP, who is now the Administrator, will continue to manage the administration until the Company is finally dissolved.

 

In order to ensure that the sale process is fair and the sale price of the company’s assets are maximised, the administrator must comply with SIP 16.

The main points are listed below, however the full document can be found at the following link:

http://www.icaew.com/index.cfm/route/162018/icaew_ga/Members/Practice/Insolvency/SIP_16_E_and_W_Pre_packaged_sales_in_administrations/pdf

 

Where a pre-pack is used the following information should be disclosed to creditors in all cases, as far as the administrator is aware after making his or her enquiries:

 

 

• The source of the administrator’s initial introduction, in other words how did the case arrive on his desk.
• The extent of the administrator’s involvement prior to appointment and any marketing activities conducted by the company and/or the administrator. 
• Any valuations obtained of the business or the underlying assets. We would always advise obtaining independent valuations.
• The alternative courses of action that were considered by the administrator, with an explanation of possible financial outcomes in each scenario. 
• Why it was not appropriate to trade the business, and offer it for sale as a going concern, during the administration.
• Details of requests made to potential funders to fund working capital requirements and whether efforts were made to consult with major creditors
• Details of the assets involved and the nature of the transaction to newco 
• The consideration for the transaction, terms of payment, and any condition of the contract that could materially affect the consideration. 
• If the sale is part of a wider transaction, a description of the other aspects of the transaction.
• The identity of the purchaser, directors and any connection between the purchaser and the directors, shareholders or secured creditors of the company.
• The names of any directors, or former directors, of the company who are involved in the management or ownership of the purchaser, or of any other company into which any of the assets are transferred.
• Whether any directors had given guarantees for amounts due from the company to a prior financier, and whether that financier is financing the new business.
• Any options, buy-back arrangements or similar conditions attached to the contract of sale.

 

 

© 2012 Jennison Insolvency is a trading name of Moorfields Corporate Recovery LLP.
Tel: 0800 107 8788. Fax: 0800 107 8788 | Registered in England. Company Number OC334837
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Jennison Insolvency provide advice for financially distressed companies including UK Company Liquidation, Company Voluntary Arrangements (CVA) and Pre pack Administration.