A pre pack administration uk is a process where the directors of a company that is insolvent sell the business and assets to an unrelated third party. This is often accompanied by arrangements with secured creditors whereby the claims of their security are novated over to the new company and this allows them to recover more than they would in a liquidation. It is often combined with a TUPE transfer of employees, which safeguards their jobs. This is particularly popular during the pandemic and in the retail, casual dining and travel and tourism sectors.
Navigating Prepack Administration in the UK: Key Considerations
However, pre-packs have always been controversial with creditors as they tend to only find out about the sale when it is already completed and then are dissatisfied that they have not received enough value from the process. This has led to various reforms – including creditor approval and the requirement that any purchaser of a company that is being sold through a pre-pack obtain a ‘qualifying report’ from an independent evaluator.
The Regulations came into force on 30 April 2021 and, in theory, prevent the disposal of a company to a connected person within the first 8 weeks of an administration appointment unless either it has the approval of the majority of creditors (using a decision-making procedure) or the administrator has received a qualifying report from a qualified independent evaluator. The details of the latter are yet to be ironed out but, theoretically, at least, it can be anyone who has’sufficient experience and knowledge’ and holds suitable professional indemnity insurance.