Pre Pack Administration

A pre pack administration allows for the sale of a company's business and assets to be negotiated before the appointment of administrators.  The sale completes either on, or shortly after, the appointment of an insolvency practitioner who acts as the administrator.  Whereas, in an “ordinary” administration, a business is marketed for sale after the appointment of administrators.

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    What is Pre-Pack Administration?

    The main criteria for pre pack administration is that it must be in the best interests of both creditors and the company.

    The directors and the appointed insolvency practitioner must be able to demonstrate that all other options were considered before the pre pack administration, and that it is in the best interests of the company and its creditors (eg a better return to creditors than in a liquidation).

    The pre pack process is costly as it is complex with a lot of planning required.  There are inherent risks for insolvent company directors, so documenting the process from an early stage is very important.

    They are not always the best option.  A creditors voluntary liquidation or company voluntary arrangement may be a better solution.

    Pre pack Administration Examples

    Recent examples of successful PP administrations include the following:

    1. Debenhams: In December 2020, the UK department store chain Debenhams entered into a pre-pack administration, resulting in the closure of 124 stores and the loss of over 12,000 jobs. The brand was subsequently bought by the online fashion retailer Boohoo.
    2. Caffe Nero: In November 2020, the UK coffee chain Caffe Nero entered into a controversial pre-pack administration, which allowed the company to close 30 unprofitable stores and renegotiate its rent agreements. The move was criticized by some landlords and creditors, who claimed they were unfairly treated.
    3. Carluccio's: In May 2020, the UK Italian restaurant chain Carluccio's entered into a pre-pack administration, resulting in the closure of 40 stores and the loss of over 1,000 jobs. The company was subsequently bought by the Giraffe and Ed's Easy Diner owner Boparan Restaurant Group.
    4. BrightHouse: In March 2020, the UK rent-to-own retailer BrightHouse entered into a pre-pack administration, resulting in the closure of all 240 stores and the loss of over 2,000 jobs. The move came after the company faced criticism for its high-interest rates and aggressive debt collection practices.
    5. Victoria's Basement: In December 2021, the Australian homeware retailer Victoria's Basement entered into a pre-pack administration, which allowed the company to restructure its debts and continue trading. The move followed a difficult period for the company, which had been impacted by COVID-19 and changing consumer habits.


    Administrative paperwork on a desk

    Advantages of Pre Pack Administration

    Pre pack administration enables a quick and smooth sale of a business as a going concern without business interruption.

    Pre packs can also protect the value of a business.  News of an insolvency appointment or financial difficulty can result in a reduction in the value of business assets; particularly the realisable value of book debts and work in progress.

    Job preservation is often one of the main reasons for using a pre pack administration.  Redundancies are avoided and continued employment secured for employees. This is not only beneficial to the economy but also reduces the number and value of preferential and unsecured claims in the insolvency.

    The substantial costs associated with trading a business during an administration can be avoided resulting in a greater return to creditors.

    Disadvantages of Pre Pack Administration

    Pre pack administrations have come under a lot of criticism in the recent past due to their lack of transparency.  Unsecured creditors are usually not informed of a pre pack deal until after it has completed, which can leave them feeling suspicious of the procedure.

    Statement of Insolvency Practice (SIP) 16 was introduced in 2009 to try to address some of these concerns.  Licensed Insolvency Practitioners are required to disclose a large amount of information to creditors following completion of a pre pack sale.

    Creditors frequently complain that the maximum value for the business and assets has not been achieved due to the nature and timing of pre packs which limits marketing opportunities.  Whilst an IP may test the market by identifying and contacting potential buyers, they are unable to fully expose the business/assets for sale on the open market without causing damage to the business.  Instead, the IP will usually need to rely on independent valuations.  Details of marketing activities and valuations must be provided in the information disclosed in the SIP16 report to creditors following appointment.

    Conflict of Interest has also previously been brought into question.  SIP16 requires disclosure of the relationship between the IP and the insolvent company's directors prior to administration, the decision-making process, and why pre pack administration was chosen over other alternatives.  The IP must work in the best interests of the creditors, and disclose the identity of the buyer and any connection with the insolvent company or its shareholders.

    SIP16 can be found here:

    Pre Pack Administrations – New Rules

    Despite SIP16, the absence of any court or creditor involvement meant that concerns over transparency in the process remained such as:

    • creditors not being informed of the sale until it is presented to them as a fait accompli, and
    • the sale of business and assets to a person who is connected to the insolvent business or company, such as a director.

    The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 was introduced on 30 April 2021 with the aim to provide creditors with reassurance that pre-pack sales to connected parties are fair, appropriate and transparent.

    The regulations restrict an administrator making a “substantial disposal” of a company’s business or assets to a “connected person” within the first 8 weeks of administration unless they either:

    • obtain approval of the transaction from creditors, or
    • have received and considered a report obtained by the connected person from an “evaluator” on the reasonableness of the proposed disposal

    The guidelines can be found here:

    The Act can be found here:


    Pre pack Administration Process

    Subject to the above new rules, the pre pack process is as follows:

    • A company under pressure from creditors is threatened with receivership or liquidation.
    • A licensed insolvency practitioner (IP) is contacted to discuss the situation and provide a range of possible options.
    • If pre-pack is decided upon, the IP will arrange for company assets to be valued and prepare a Statement of Affairs.
    • If the business is to be sold to an existing company, steps will be taken to ensure the buyer has the necessary funds.  Management accounts and other information will be obtained to ensure the business is viable.
    • If the intention is to sell the business to a new company, or 'newco,' cash flow, profit and loss, and balance sheet forecasts should be provided to demonstrate the viability of the new company and their ability to purchase the assets.
    • The company is placed into administration, suspending all legal actions against them, and the company's assets are sold immediately.
    • The administrator will arrange a creditors' meeting to explain the reasons for taking this insolvency route.  A recommendation for liquidating the company is often given and ratified by creditors.
    • The company is placed into liquidation and creditors are repaid pro-rata with funds received from the liquidated assets.


    Pre Pack Administration Employee Rights

    Employees may be concerned about their rights during this pre pack sale process.  Here are some key points regarding employee rights in a pre pack administration:

    Transfer of Undertakings (Protection of Employment) Regulations (TUPE):

    In most cases, the TUPE regulations will apply during a pre-pack administration. These regulations ensure that employees' contracts, terms, and conditions of employment are transferred to the new employer, preserving their continuity of service.

    Consultation and Information:

    TUPE requires employers to inform and consult with employee representatives, such as trade unions or elected employee representatives, about the proposed transfer. Failure to do so can result in financial penalties for the employer.


    If employees are made redundant as a result of the pre-pack administration, they may be entitled to redundancy pay, provided they have at least two years of continuous service with the company. The amount of redundancy pay depends on the employee's age, length of service, and weekly pay (up to a statutory maximum).

    Claims against the old employer:

    If employees have outstanding claims against the old company or employer, such as unpaid wages or holiday pay, they can make a claim to the National Insurance Fund (NIF). In some cases, the new employer may also be liable for these claims.

    Protection against dismissal:

    Employees are protected against unfair dismissal in connection with the transfer. Dismissals can only occur for economic, technical, or organizational reasons, and employers must follow proper procedures.


    If the old employer provided a pension scheme, the new employer may be required to provide a similar pension arrangement or enroll employees in a new scheme. However, accrued pension rights are not typically transferred under TUPE.

    Changes to terms and conditions:

    The new employer cannot unilaterally change employees' terms and conditions of employment without a valid reason. Any changes must be agreed upon by both parties and must not be connected solely to the transfer.

    If you are a director wondering if you can claim redundancy read our article Director Redundancy Pay: Can I Claim?

    If you are a director and are struggling to pay your staff read our article Can't afford Staff Wages? - Find out what to do NOW!

    We’re here to help

    If your company is facing pressure from creditors, we can help.  We have years of experience offering advice and assistance to struggling companies.

    Get in touch with us today to arrange a free, no obligation consultation with our licensed insolvency practitioner.


    A pre-pack is a method where the agreement for the transfer of a portion or all of a company's business and/or assets is negotiated and finalised prior to the engagement of an insolvency practitioner (IP). The necessary documents are prepared and executed either straight away or shortly following the appointment.

    A pre-pack administration is typically a swift procedure as the discussions and marketing occur before an administrator is engaged. The pre-pack process might require approximately 4-10 weeks in total, but the timeframe varies depending on the intricacies of each business's operations.

    • Quickness of sale – The pre-pack process enables a swift release of funds to satisfy creditors and clear debts. As the business enters administration, asset liquidation can occur immediately, thereby minimising administrator's fees.
    • Continuity of operations – The quick sale of the old business, whilst still viable, permits largely uninterrupted operations under a new company name. This can foster the new company's success and safeguard relationships with customers, clients, and suppliers.
    • Retention of control by directors – Unlike other insolvency procedures, the directors retain a level of authority over the business during the pre-pack process.
    • Opportunity for renewed success – If the existing directors or management are the purchasers, they have the chance to learn from previous mistakes and achieve success with the business, unburdened by past debts.
    • Preservation of brand image – A prompt sale at a reasonable price accelerates creditor repayment and aids in maintaining the business's reputation and accumulated goodwill. This can also help secure jobs, further mitigating harm to public perception.

    In a pre-pack administration, a Viablilty Statement demonstrates that the individual or entity purchasing the assets and business is financially stable and unlikely to rapidly succumb to insolvency.

    A pre-pack administration signifies the conclusion of one company and the establishment of a new one. On the other hand, a Company Voluntary Arrangement (CVA) implies that the existing company continues its operations.

    A CVA is an official agreement with your creditors that allows the existing company to keep going, maintaining the same bank, licences, qualifications, staff, offices, customers and so forth.

    Conversely, a pre-pack administration results in the old company entering administration, with the business being sold to a new limited company.

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