Pre Pack Administration
It is a formal Insolvency procedure where a company arranges to sell all or part of its assets to a predetermined buyer before appointing administrators. Pre pack is a legal way of selling the business to a third party or existing shareholders who will operate under the ‘newco’. Pre pack is however discouraged where a winding up petition is issued.
Where Pre Pack is Appropriate and How it Works
Pre pack is considered in situations where the company faces voluntary liquidation and the inability to continue trading if a winding up petition is on the way. It is a procedure where the assets and business of the oldco are sold to its current directors who form the newco with finances to fund the acquisition. Pre pack is ideal where the company needs to preserve its valuable assets and considers the aspect of settling with creditors.
Guide to pre pack administration
Seek advice and consultations with professionals qualified to handle the move. Seek resolution of the board of directors and consider the position of the creditors. Appoint advisors like Insolvency practitioners or accountants to examine options.
Appoint the IP to start the valuation of assets and administration proposal, statement of affairs creation. The oldco is marketed and genuine offers are considered. A document detailing expected outcomes and projected costs prepared for directors.
Draw up necessary financial documents, forecasts, and an indication of working capital as requirements for the viability of the sale. A business plan for a new company is also created.
The IP prepares asset valuation and statement of affairs considering the goodwill of the company accounting for any conflicts of interest that may arise. The practitioner ensures compliance and advertises the sale.
Handle the financing of the acquisition by consulting specialist lenders and venture capital companies. A contract is drawn up and the proposed Administrator officially appointed.
The administrator contacts floating charge holders, and a court application is sought before the sale is finalized and the oldco enters administration. An after-sale meeting is held with the creditors of the old company to explain the action taken. Liquidation of oldco is considered.