Glossary · UK
What is Pre-Pack Administration?
An insolvency process in which the sale of an insolvent company's business and assets is negotiated and agreed before an administrator is formally appointed, then completed immediately afterwards.
Full Definition
Pre-pack administration (short for "pre-packaged administration") is an insolvency procedure in which the sale of some or all of a struggling company's business and assets is arranged and agreed in advance, before the company formally enters administration, so that the sale can be completed immediately once an insolvency practitioner is appointed as administrator. Because the deal is ready to complete on day one, a pre-pack can preserve jobs, contracts and customer relationships that might otherwise be lost during a lengthier, more disruptive insolvency process, and it can achieve a better return for creditors than a slower sale process or a straightforward liquidation, where trading may have to stop and asset values can deteriorate quickly. Pre-packs are controversial because the buyer is often a new company connected to the failed business, sometimes involving the same directors -- a form of phoenix company -- which critics argue can let a business shed its debts to creditors (including, frequently, unpaid suppliers and HMRC) while the underlying business carries on much as before under new ownership. To address these concerns, UK regulations require that where a pre-pack sale is made to a connected party, either the creditors must approve it or an independent "pre-pack pool" evaluator must review and report on whether the transaction is reasonable, and the administrator must give creditors a detailed explanation (an "SIP 16 statement") of why a pre-pack sale, rather than an alternative such as a Company Voluntary Arrangement or trading through administration, was judged to be in creditors' best interests.