“Pre-pack” insolvency sales occur when a sale of an insolvent company’s business and assets is negotiated shortly before the company enters liquidation. Once in liquidation, the sale is completed by the appointed liquidator.
The administration process offers a company and its trading business protection from creditor action, whilst an appointed insolvency practitioner acting as administrator puts together a plan to achieve one or more of the following objectives:
Typically a company enters into administration whilst still trading as this usually offers the best basis on which to achieve one or more of the above objectives.
An administrator can be appointed by directors, shareholders or secured creditors with a qualifying floating charge.
Appointments tend to be made quickly due to distressed circumstances.
Pre-pack administration sales are generally completed immediately following a company entering into administration to avoid the significant professional fees associated with trading a company in administration.
Liquidation is a process whereby a company ceases to trade and its assets are realised for distribution to creditors and thereafter (if possible) shareholders.
There are two forms of insolvent liquidation; creditors’ voluntary liquidation (CVL) and compulsory liquidation.
A CVL is a process instigated by proactive and responsible directors when it is clear that there is no reasonable prospect of a recovery in a company’s financial position and steps should be taken to cease to trade to avoid it worsening. As a firm, we are qualified to assist and support directors in taking the practical steps to place a company into CVL.
Compulsory liquidation is liquidation forced upon a company via a Court order when directors do not act.
CVL is seen as a more positive form of insolvent liquidation. If you would like to learn more about the advantages of CVL over compulsory liquidation, please read our blog post.
Pre-pack liquidation involves pre-arranging a sale of the company’s assets prior to it entering CVL.
Full detail of the proposed sale is presented to shareholders and creditors at meetings convened as part of the CVL process just prior to completion.
The two key differences between a pre-pack administration sale and a pre-pack liquidation sale are as follows:
Pre-pack sales can be subject to controversy and mistrust by creditors. Sales are generally completed quickly giving limited opportunity for outside enquiry before completion and often, the highest prices are offered by those who have had some prior involvement in the company.
This is especially true with small to medium businesses where a lot of intangible value will be tied up in the knowledge and experience of the former directors.
In our view, when properly implemented, ‘pre-pack’ administration and liquidation sales are a very useful tool for business recovery.
Key benefits include:
If you would like to discuss pre-pack insolvency sales further please call us on 020 8662 6070 for friendly and professional advice