You may have seen recent news stories of the likes of Transform Hospital Group and Brymor Construction Limited bought out in a pre-pack sale. A pre pack sale is a way of restructuring an insolvent company where the business’s assets can be sold back to its former owners, seemingly leaving the historical debts behind (or at least being left unpaid) with a new owner.

The process involves the soon-to-be appointed administrators assessing the value of the distressed company’s assets and marketing them for sale. Once a potential buyer is identified they are then approached and the sale negotiated in order to get the best price for the company. Once a purchase price is agreed the appointment of administrators is formally initiated and the sale completed – usually with minimal disruption to trading operations.

Exploring the Benefits of a Pre Pack Sale

As the name suggests, this approach is a way to preserve the value of a company in administration and often leads to a more positive return for creditors than would be possible in a liquidation. It also helps to preserve jobs and commercial momentum through a seamless transfer of trade allowing customers, suppliers and employees to continue working largely uninterrupted.

However, concerns are sometimes raised that pre-pack sales can lead to phoenixing where the original owner-managers purchase the company and its assets, essentially ‘asset stripping’ it whilst dumping its liabilities. In order to help mitigate these concerns, IPs are required to provide detailed information to creditors regarding the sales process and regularly update them throughout the sale. In addition, the Statement of Insolvency Practice 16 contains specific provisions to safeguard and protect creditors in pre-pack sales.