Pre-pack administration — the procedure explained

Two stages, the second usually immediate on the first:

• ›Pre-appointment — the proposed administrator (typically engaged by the directors) markets the business and assets, identifies a buyer, agrees price and terms, and prepares the sale documentation.
• ›Appointment — the administrator is formally appointed (typically under Schedule B1 IA 1986 paragraph 22 — out-of-court appointment by the company or directors). Immediately on appointment, the sale is completed.

From the outside, the business appears to continue trading — perhaps under a slightly different name. Inside, ownership has transferred from the old company (which goes into administration and ultimately liquidation) to the new buyer entity. Customer contracts, employees (via TUPE), and supplier relationships transfer to the buyer.

• ›Speed — the sale completes on day one rather than 4–8 weeks later. Customer relationships, supplier confidence and employee morale are preserved.
• ›Value preservation — many SME businesses are worth substantially more as going concerns than as broken-up assets.
• ›Employee continuity — TUPE transfers employees to the buyer. Most or all jobs are preserved.
• ›Confidentiality — pre-appointment marketing avoids public disclosure of distress, which can accelerate trading deterioration.
• ›Cost efficiency — pre-packs typically run £15,000–£30,000 compared to £20,000–£60,000+ for open-market sale administrations.

Approximately 50–60% of pre-pack administrations involve a connected party as buyer — typically the directors, their family members, or another company they control. Connected party pre-packs are controversial because they appear to allow directors to buy back the business while leaving creditors with substantial losses. Specific safeguards apply.

The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 require:

• ›Independent third-party opinion on the proposed sale — typically from the Pre-Pack Pool or another qualifying reference body.
• ›The opinion must conclude the sale is ‘not unreasonable’ before the administrator can proceed.
• ›Where the opinion is not obtained or is adverse, the administrator can still proceed but must obtain creditor approval (typically by 75% by value).
• ›Disclosure to creditors of the connection and the basis for the sale.

The Regulations apply only to sales within 8 weeks of administration. They apply to all ‘substantial disposals’ to connected persons — not just whole-business pre-packs.

Statement of Insolvency Practice 16 governs how the administrator must conduct and disclose the pre-pack. SIP 16 requires:

• ›Detailed disclosure to creditors within 7 days of appointment — explaining the sale, the marketing undertaken, the valuations, the buyer identity, and the connected status.
• ›Marketing evidence — the administrator must demonstrate the business was marketed appropriately or explain why marketing was not practical.
• ›Valuation evidence — independent valuations of the business and assets sold.
• ›Explanation of why pre-pack was chosen over alternative procedures (open-market administration sale, CVA, CVL).

SIP 16 disclosure failures are common grounds for regulatory criticism of IPs and can trigger IPA / RPB investigations.

The Pre-Pack Pool is the principal independent reference body for connected party pre-packs. Established in 2015 as a voluntary mechanism, the Pool became central to the regulatory framework after the 2021 Regulations made independent opinion essentially mandatory.

• ›Pool members are experienced practitioners (typically former IPs, lawyers, accountants) who review proposed pre-packs and produce written opinions.
• ›Opinion outcomes: ‘not unreasonable’ (sale can proceed); ‘limited disclosure’ (more information needed); ‘case not made’ (sale should not proceed without further consideration).
• ›Pool fee: typically £1,000–£3,000 paid by the buyer or the company.
• ›Turnaround: typically 2–3 working days.

• ›The business has identifiable going-concern value — customers, contracts, staff, goodwill.
• ›A credible buyer is available — able to fund the purchase, willing to complete quickly.
• ›Pre-pack will deliver better creditor return than alternative procedures — demonstrable to the administrator and any reference body.
• ›Open-market sale during administration would destroy value — typically because of customer / supplier reaction to public distress.

Pre-pack is not appropriate when: the business has no real going-concern value; the principal motivation is asset stripping; the buyer is connected and the price is materially below market; or alternative procedures would deliver equivalent or better outcomes.

• ›Personal exposure — if the director is also the buyer (or a connected party of the buyer), the transaction is subject to misfeasance, preference, and transaction-at-undervalue scrutiny.
• ›Funding — the buyer must have funds available at completion. Buyer due diligence by the administrator is rigorous.
• ›Director loan account position — if the director owes the company, the company asset must be paid for in the pre-pack value or transferred to the liquidation as a debt.
• ›Employee position — TUPE transfers ongoing employees to the buyer. Director-employees may transfer or be made redundant depending on the buyer’s intent.
• ›Reputational — pre-pack to a connected party will be the subject of SIP 16 disclosure. Creditors will know exactly what happened.

For the Administration framework generally, see Administration pillar. For the decision between Administration and CVL, see Administration vs CVL. For CVA as an alternative restructuring procedure, see CVA full guide.