Understanding Pre-Pack Administration
A fast-track administration process that can preserve business value and save jobs. Expert insight into when pre-packs work, their benefits, and potential pitfalls.
Discuss Your OptionsPre-Pack Administration: The Essentials
Speed & Continuity
Sale agreed before administration, completing immediately upon appointment
Value Preservation
Protects business value, jobs, and customer relationships
Creditor Focus
Must achieve better returns than liquidation alternative
Transparency Required
Strict disclosure and justification standards apply
Key insight: Pre-pack administration can be a powerful rescue tool when used appropriately, but requires careful planning, transparent process, and experienced professional guidance.
What is Pre-Pack Administration?
A pre-pack is an arrangement where the sale of business assets is negotiated and agreed before administrators are formally appointed, with completion occurring immediately afterward.
How Pre-Packs Differ
Standard Administration
Administrator appointed first, then markets business for sale over time
Pre-Pack Administration
Sale negotiated before appointment, completes immediately upon administration
Critical difference: The speed of a pre-pack preserves business value by maintaining operations without disruption, protecting jobs and customer confidence.
Why Speed Matters
When insolvency becomes public knowledge:
Customer Confidence Lost
Orders cancelled, contracts withdrawn
Key Staff Depart
Experienced employees seek stable employment
Value Rapidly Erodes
Business worth significantly reduced, creditor returns diminished
Benefits and Considerations
Key Benefits
Business Continuity
Operations continue without interruption, preserving going concern value
Job Protection
Employees retained, avoiding redundancy and preserving skills
Supplier Relationships
Continuity increases likelihood of suppliers being paid under new ownership
Better Creditor Returns
Preserved value means improved recovery for creditors
Common Criticisms
Lack of Transparency
Process can appear secretive to creditors and stakeholders
Limited Marketing
Sale arranged before open market testing of asset values
Director Involvement
Concerns when existing directors buy business through new company
Creditor Concerns
Perception that creditors may not receive fair treatment
The Pre-Pack Process
Understanding the steps involved in a pre-pack administration
Initial Assessment
Company contacts licensed insolvency practitioner. Assessment of position and available options conducted.
Valuation & Preparation
IP values assets, prepares Statement of Affairs, and identifies potential buyers.
Sale Negotiation
Terms agreed with buyer. If newco, viability forecasts prepared and funding arranged.
Independent Evaluation
Since 2021, mandatory independent evaluator reviews transaction within 48 hours (for connected party sales).
Administration & Sale
Company enters administration. Sale completes immediately, suspending creditor actions.
Creditor Meeting & Distribution
Administrator explains decision to creditors. Sale proceeds distributed pro-rata.
Phoenix Companies & Safeguards
What is a Phoenix Company?
A phoenix company is a new entity that continues similar business activities to an insolvent company, often operated by the same directors or shareholders. While legitimate in many cases, this has historically raised concerns about fairness to creditors.
2021 Reforms
Since 2021, connected party sales (including phoenix scenarios) require mandatory independent evaluation. The evaluator must review the transaction within 48 hours and provide an opinion on whether it should proceed.
SIP 16 Disclosure Requirements
When is Pre-Pack Appropriate?
Viable Core Business
Fundamentally sound business facing temporary cash flow crisis, not long-term structural problems
Time-Critical Situation
Business value eroding rapidly, insufficient time for standard administration marketing process
Identified Buyer
At least one credible buyer ready to proceed, whether third party or directors via newco
Essential Criteria
Creditor Benefit
Must demonstrate better returns than liquidation alternative
Adequate Security
Assets valued highly enough to cover secured creditor claims
Expert Pre-Pack Support from K2
K2 provides strategic advice and hands-on support throughout the pre-pack process
How We Help
Initial Assessment
Evaluate whether pre-pack is the right option for your situation
Process Management
Coordinate with IPs, buyers, and stakeholders throughout
Business Planning
Develop robust forecasts and viability assessments
Post-Sale Support
Help implement recovery strategy in the new structure
Why Choose K2
Practical Approach
We combine technical expertise with hands-on implementation support, ensuring the new business structure delivers real value.
Frequently Asked Questions
Is a pre-pack the same as phoenixing?
Not necessarily. While phoenix companies can be created through pre-packs, the two concepts are distinct. A pre-pack is the process; a phoenix is one possible outcome. Legitimate phoenix companies must comply with strict regulations including independent evaluation since 2021.
How long does a pre-pack take?
The preparation phase varies, but once the administrator is appointed, the sale completes immediately or within hours. The key advantage is this speed, which preserves business value and prevents erosion of goodwill and customer relationships.
Can directors buy their own business through a pre-pack?
Yes, but with strict safeguards. Since 2021, connected party sales require mandatory independent evaluation within 48 hours. The evaluator must confirm the sale represents fair value and is in creditors' best interests before it can proceed.
What happens to employees in a pre-pack?
One major benefit of pre-packs is job preservation. Employment typically transfers to the buyer under TUPE regulations, maintaining continuity. This is significantly better than liquidation where most jobs are lost immediately.
Are pre-packs legal and ethical?
Yes, when conducted properly. Pre-packs are a legitimate insolvency tool governed by the Enterprise Act 2002 and Statement of Insolvency Practice 16. They must demonstrate better creditor returns than alternatives and comply with strict transparency and disclosure requirements.
Explore Your Pre-Pack Options
If your business is facing financial pressure, K2 can help you understand whether pre-pack administration could preserve value and protect jobs while delivering fair returns to creditors.
Confidential consultation • 30+ years experience • Proven track record