9 May 2013 Pre-packaged insolvencies

By Alistair Jaque, Partner and Andrew Draper, Senior Associate

What is a pre-pack?

At Swaab, we have seen an increase in "pre-packaged insolvencies" by distressed companies. "Pre-packs", as they are known, are arrangements where the sale of all or part of a company's business and/ or assets is negotiated with a purchaser (often one associated with the company or its management) prior to the appointment of an administrator, and the administrator effects, or authorises the sale immediately on, or shortly after, his appointment.  Where the sale takes place prior to the appointment of the administrator, it is often done in consultation with the administrator-elect.


Pre-pack sales are becoming more popular because they avoid the costs and risks of continuing to trade during the administration, as well as the costs of the administrator marketing the business, finding a willing buyer, and negotiating the sale.  Pre-pack sales preserve the goodwill of the business and hence maximise the value of the business and the assets. The sale proceeds provide the administrator with immediate funds to be used and distributed, reducing the length of the administration and resulting in a quicker return to creditors.

Warning signs of Phoenix activity

While the benefits of Pre-pack sales are clear, critics claim it is vulnerable to exploitation and fraud. Administrators should look out for the following warning signals:

  • where the company's business and/or assets are being sold for below market rates, or where consideration is 'illusionary' or will not be paid at all
  • where the company's business and/or assets are being sold to a creditor of the company (which may give the creditor an unfair preference)
  • where the directors of the company incur debt immediately before selling the business and/ or assets without having any expectation that the company will be able to repay the debt in the future.

Administrators are ultimately responsible to ensure the sale is commercially justified and in the best interests of the creditors considering all the circumstances.

If you would like to talk to us about the process we have developed for Pre-pack sales or the ways we protect our clients' interests in these transactions, please contact:

Alistair Jaque, Partner  |  Phone: +61 2 9233 5544  |  Email:

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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