Under a pre-pack, the company is placed into administration and immediately the assets are sold to a third party. The buyer of the assets can be a shareholder or even a director of the insolvent company. The Administrator is appointed to conduct the sale.
Under a pre-pack the IP must satisfy himself that in selling the assets immediately after administration he is getting the best price for those assets. To that end all of the pre sale work should be undertaken in the run up to the appointment of the administrator. Typically the assets will be valued and the enquiries will be made as to whether the business can be sold as a going concern. The major creditors of the company should also be consulted to confirm that they have no objections to the pre pack. The consent of these creditors is not required, but consulting them shows good practice and prevents any future accusations of skullduggery (especially where the current directors buy back the business).
Pre packs are useful when the business can’t really be sold on the open market – for example if a director is the business (ie so important to the business that it cannot function without him – to such an extent that a third party would not buy that business without that director joining).
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