Pre pack insolvency is when a company’s directors decide that it is insolvent and engage an insolvency practitioner to assess the situation and advise on the best course of action. This can include a trading administration, a scheme of arrangement or liquidation. The insolvency practitioner will consider all options including a pre-pack and advise on the best route for creditors. The process involves a sale of the company and its assets to a new entity, which can be a newly incorporated business or an existing one. The insolvency practitioner will have to comply with the requirements and principles set out in Statement of Insolvency Practice (SIP) 16.

Deconstructing Pre-Pack: What You Need to Know

There are a number of reasons why a pre-pack is an effective solution for distressed companies. It can enable a sale as a going concern which can preserve some of the value of the intangible assets such as goodwill, websites and databases. This can improve the return to creditors compared with a straightforward liquidation where those assets would be sold off. It also allows the business to continue trading during the period of administration.

Insolvency practitioners who undertake pre-packs will have to give substantial disclosure to creditors in order to alleviate concerns they may have about the process. This includes the marketing activities undertaken and asset valuations. The insolvency practitioner will also need to demonstrate that every other option was considered and the pre-pack was the best option for creditors in the circumstances.