“A pre-pack administration is an arrangement whereby the sale of all or part of a company’s business and/or assets is negotiated and agreed, before an insolvency practitioner (IP) is appointed with the relevant documentation being signed and implemented, immediately or shortly after the appointment is made.”
Put simply, a restructuring plan is agreed in advance of a company declaring its insolvency. It is a popular and an increasingly common process for business recovery, which facilitates the sale of the business on a going concern basis, thus maximising its value for the benefit of creditors.
The process will be overseen by a licensed IP who will ensure that the proposed sale is in the best interests of creditors and that the overall purpose of administration, as set out within insolvency legislation, is likely to be achieved.
It is common for the directors of an insolvent company to incorporate a new entity (company) with the intention to buy back the business and assets in a pre-pack administration scenario. There is nothing wrong with this, as long as the appropriate procedure has been followed, which will include a discreet marketing campaign to ensure that the best possible price is being achieved.
The advantages of the pre-pack administration process may include:
- Business continuity
- Business value protection
- Job preservation
- Certainty as to what is being purchased, as opposed to a share acquisition
- Reduced costs compared to other insolvency routes
- A relatively speedy process
Stages of the Pre-Pack Administration Process
Pre-pack administration is a formal insolvency procedure. It came to the fore with the Enterprise Act 2002 and the process has clear stages, that can be broken down as follows.
Stage One - an Advice Meeting
To get to know your circumstances, the first step is to arrange a free advice meeting. Time is of the essence here, and we will advise you of the best ways forward after a face to face or online conversation. It is important that all, or the majority of directors are present so that a clear understanding of the company’s position can be obtained. It is likely that the meeting will result in a list of further information required in order for us to assess if a pre-pack administration is the most appropriate process for you.
Stage Two - Review
This can take up to 14 working days. The information that we’ve gathered during and after Stage One will help us conclude whether a pre-pack administration is the most appropriate process for you and, if so, an action plan will be put in place. If you intend to sell the business, specific details of the company’s financial performance and projections will have to be provided. This will include cashflow projections, balance sheet and profit and loss forecasts, an analysis of your customer and supplier base, and any other data that may be of interest to a potential purchaser. We will also provide you with our terms of business, for the pre-pack administration process.
Stage Three - Professional Valuation
As soon as Stage Two is complete, valuations and marketing in the pre-pack administration process begins, to enable interested parties to start making offers. Formal valuations of assets and goodwill etc. are sought from qualified surveyors, who will often also advise on the most appropriate method to market the business and assets. Greenfield Recovery Ltd understand the need for sensitivity here and you are guaranteed that marketing of your business is discreet, so that current client relations remain unaffected. Any interested party must enter into a formal Non Disclosure Agreement before being provided with more specific information gathered at Stage two.
Stage Four - the Sale Negotiation and Agreement
At this stage of the pre-pack administration process a sale will have been negotiated and agreed, in principle, between the purchaser and the IP. We always advise that you then acquire an opinion from the Pre-Pack Pool, which is an independent body of experienced business people, who will provide their opinion on the proposed transaction and the viability of the businesses success for a period of at least 12 months following the transaction. This will enhance the credibility of the transaction and mitigate any criticism as a result. An agreement is then drawn up legally between the two party’s solicitors to reflect the terms of the sale, pending the company being placed into administration. This stage normally takes under a week.
Stage Five - Appointment of Administrator
When both parties are ready to proceed with the sale of the business and/or assets, solicitors will be instructed to prepare the necessary documentation to file in Court to facilitate the Administrator’s appointment. An Administrator can be appointed in a number of ways, but usually during a pre-pack administration the appointment will be made by the directors and/or shareholders. We will guide you through this process.
In some instances, insolvency legislation dictates that certain parties, such as a charge holder, must be given notice of the intention to appoint an administrator. In such circumstances, a minimum notice period of 5 business days must be provided. Following this, a notice of appointment will be sealed by the Court.
Stage Six - Finalising the sale
As soon as the appointment of Administrator has been confirmed, both parties will then sign the sale agreement and then finalise the transaction pursuant to terms set out within it. This will usually be within 24 hours of the Administrator’s appointment. From this time the purchaser will be able to carry on trading the business in the new entity.
Stage Seven - Administration Process
Following the sale, the Administrator has various statutory duties to attend to, which will include issuing notification of the administration to creditors, making a full disclosure of the pre-pack administration sale pursuant to Statement of Insolvency Practice 16, realising any assets not included within the aforementioned sale, investigating the financial affairs of the company and distributing funds to creditors. An administration will typically be concluded within 12 months.
With over 150 years of combined insolvency experience, Greenfield Recovery Ltd are perfectly placed to help you with your pre-pack administration or advise you on the right solution for your business (including funding).
We have been trusted by thousands of directors and offer free same day advice from our team of experienced insolvency professionals with no obligation.
Contact us today to find out more.