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Pre Pack Agreement

by Jill & Cathy on May 19, 2023

A pre-pack agreement, also known as a pre-pack administration, is a process that enables a company to quickly sell its assets to a buyer immediately after entering into administration. This method of sale allows for a quick and efficient sale of a financially distressed company’s assets while minimizing disruption to its operations.

The pre-pack process involves the appointment of an insolvency practitioner, who will act as the administrator. He or she will work with the company directors to identify a suitable purchaser for the business and its assets. The administrator will then negotiate with the buyer and finalize the deal, with the sale often completed within days of the appointment of the administrator.

The key advantage of a pre-pack agreement is that it allows for a fast sale of a company’s assets, typically at a higher value than a traditional sale. This is because the sale is conducted in a controlled manner, with the administrator ensuring that the assets are sold at a fair market value.

Another benefit of a pre-pack agreement is that it helps to preserve jobs and the company’s brand. By selling the assets to a new owner, the business can continue to operate, and employees can retain their jobs. The company’s brand can also be preserved, as the new owner can continue to use the company’s name and branding.

However, there are some potential drawbacks to a pre-pack agreement. Some critics argue that it can be used as a way for company directors to avoid their responsibilities and leave creditors with unpaid debts. There are also concerns about the lack of transparency in the process, with some insolvency practitioners accused of not fully disclosing the details of the pre-pack agreement to creditors.

To address these concerns, the UK government introduced new regulations in 2015 that require insolvency practitioners to provide more information about the pre-pack process to creditors. The regulations also give creditors the right to challenge the sale of assets to connected parties, such as company directors or their relatives.

In conclusion, a pre-pack agreement can be a useful tool for financially distressed companies to quickly sell their assets and avoid disruption to their operations. However, it is important to ensure that the process is transparent and that creditors are adequately informed about the sale. As always, seeking the advice of a qualified insolvency practitioner is essential for any company considering a pre-pack agreement.

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