When a business finds itself in financial distress, directors often turn to an insolvency practitioner for advice on the best way forward. One option they might consider is a pre pack administration meaning, where the company’s assets are sold to a new purchaser entity (usually a new company set up for the purpose, but sometimes an existing one). This process has come under considerable criticism because of its lack of transparency and inclusivity for creditors, particularly unsecured ones. However, recent legislation has introduced stricter controls and greater scrutiny of pre-pack sales to connected parties.

What Is the pre pack administration meaning?

Pre-pack administration is a form of insolvency that involves the sale of the company’s assets and the transfer of employees and contracts to a new entity. The process normally takes place before the insolvency process is triggered, allowing the administrator to market the business and its assets discreetly. This helps to preserve the value of the assets and provides a more appealing outcome for creditors than a liquidation.

A key benefit of a pre-pack is that it allows for the quick sale of the business and its assets, which can reduce trading costs and improve the amount of money available to pay creditors. In addition, the process can help to preserve jobs and minimize the impact on suppliers, customers and staff.

This article from Dentons explores the role of evaluators who have been made compulsory for all pre-pack sales to connected parties in an attempt to boost confidence and improve transparency in the process. We also look at the practicalities of ensuring that evaluators are not “opinion shopping” and whether the changes introduced earlier this year have had the desired effect.