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Pre-packaged insolvency
Pre-packaged insolvency (a "pre-pack") is a kind of bankruptcy procedure, where a restructuring plan is agreed upon in advance of a company declaring its insolvency. In the United States pre-packs are often used in a Chapter 11 filing. In the United Kingdom, pre-packs have become popular since the Enterprise Act 2002, which has made administration the dominant insolvency procedure. Such arrangements are also available in Canada under the Companies' Creditors Arrangement Act.
The term "pre-pack sale" has been defined by the Association of Business Recovery Professionals as "an arrangement under which the sale of all or part of a company’s business or assets is negotiated with a purchaser prior to the appointment of an administrator, and the administrator effects the sale immediately on, or shortly after, his appointment". The difference between a pre-pack sale and a normal sale is that in a normal sale the administrator markets the business and negotiates the terms of the sale after his appointment.
The reasons an administrator sells on a pre-pack basis, rather than after post-appointment marketing, vary from case to case, but they often involve the following considerations. A pre-pack sale avoids the costs of trading (which means creditors receive more back), and indeed, the company and the administrator may not have the funds to trade. It also avoids the administrator taking on the risks associated with trading. The value of the business may deteriorate during administration trading.
There may be other factors to prevent trading, such as regulatory problems.
The courts have held that an administrator can sell the company's assets immediately upon his appointment, without court approval or the approval of the creditors, and he can do so even if the majority creditor objects. Courts have even approved transactions that, as a "necessary evil", have made payments to the former management while leaving little or nothing to unsecured creditors.
In January 2009, the Association of Business Recovery Professionals issued Statement of Insolvency Practice 16 to require insolvency practitioners acting as administrators to disclose a number of matters to all creditors as soon as possible after the completion of the sale. This was done in an attempt to provide greater transparency to creditors.
On 1 November 2013, following a government-commissioned review, a new Statement of Insolvency Practice 16 was introduced. It requires administrators to disclose the following:
The main benefit of a pre-pack administration is the 'continuity' of the business - the company is protected by the court. This gets rid of debts and contracts. It does not get rid of employees due to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). Another big advantage is that the cost of the process is lower than trading administration, as the administrators do not need to find funding to trade the business. The downside of a pre-pack administration is that it can attract negative publicity if the former directors are seen to be shedding liabilities.
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Pre-packaged insolvency
Pre-packaged insolvency (a "pre-pack") is a kind of bankruptcy procedure, where a restructuring plan is agreed upon in advance of a company declaring its insolvency. In the United States pre-packs are often used in a Chapter 11 filing. In the United Kingdom, pre-packs have become popular since the Enterprise Act 2002, which has made administration the dominant insolvency procedure. Such arrangements are also available in Canada under the Companies' Creditors Arrangement Act.
The term "pre-pack sale" has been defined by the Association of Business Recovery Professionals as "an arrangement under which the sale of all or part of a company’s business or assets is negotiated with a purchaser prior to the appointment of an administrator, and the administrator effects the sale immediately on, or shortly after, his appointment". The difference between a pre-pack sale and a normal sale is that in a normal sale the administrator markets the business and negotiates the terms of the sale after his appointment.
The reasons an administrator sells on a pre-pack basis, rather than after post-appointment marketing, vary from case to case, but they often involve the following considerations. A pre-pack sale avoids the costs of trading (which means creditors receive more back), and indeed, the company and the administrator may not have the funds to trade. It also avoids the administrator taking on the risks associated with trading. The value of the business may deteriorate during administration trading.
There may be other factors to prevent trading, such as regulatory problems.
The courts have held that an administrator can sell the company's assets immediately upon his appointment, without court approval or the approval of the creditors, and he can do so even if the majority creditor objects. Courts have even approved transactions that, as a "necessary evil", have made payments to the former management while leaving little or nothing to unsecured creditors.
In January 2009, the Association of Business Recovery Professionals issued Statement of Insolvency Practice 16 to require insolvency practitioners acting as administrators to disclose a number of matters to all creditors as soon as possible after the completion of the sale. This was done in an attempt to provide greater transparency to creditors.
On 1 November 2013, following a government-commissioned review, a new Statement of Insolvency Practice 16 was introduced. It requires administrators to disclose the following:
The main benefit of a pre-pack administration is the 'continuity' of the business - the company is protected by the court. This gets rid of debts and contracts. It does not get rid of employees due to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). Another big advantage is that the cost of the process is lower than trading administration, as the administrators do not need to find funding to trade the business. The downside of a pre-pack administration is that it can attract negative publicity if the former directors are seen to be shedding liabilities.