A pre-pack insolvency involves selling the assets of a failing company to a new business. This allows the assets to be sold quickly and without disruption, potentially preserving jobs, contracts and a valuable brand name. The new company can be owned by the same directors as the old one or it can be an entirely separate group of people.

Using a pre-pack can be more efficient and cost-effective than the traditional process of administration or liquidation. It also provides the opportunity to recover intangible assets that may not be available in a liquidation sale such as web sites and databases. This can allow a greater return for creditors.

Delving into Pre-Pack Insolvency: Pros and Cons

However, a pre-pack sale can cause some concern amongst creditors – particularly where the new purchaser is connected to the insolvent company such as current directors or management team. Insolvency practitioners will require management information and profit and loss forecasts from a prospective buyer as well as a business plan to establish viability. This is to ensure there is no conflict of interest.

Once an IP has been appointed, they will work to complete the sale process including seeking valuations of the existing assets and creating a Statement of Affairs to present to the creditors. They will also be required to fully market the existing business for sale and document any offers received, even from competitors. This will help alleviate concerns about a lack of transparency and inclusivity of the process.

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