Pre-pack­­aged insolvencies

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.