Pre-Pack Administration

A pre-pack administration is a sale of the company’s business that is arranged before the administrator is formally appointed and completed immediately afterwards. The business is sold as a going concern, often to the existing directors or a connected party, while the old company enters administration and is eventually liquidated.

We are direct about why this process is controversial: from the outside, it looks like the directors ran up debts, put the company into administration, bought the business back for a fraction of its value, and left creditors with nothing.

In some cases, that is exactly what happened. In others, the pre-pack genuinely preserved jobs, customer contracts, and business value that would have been destroyed by a slow, public sale process.

The difference between a legitimate pre-pack and an abusive one is transparency, valuation, and whether the administrator acted in creditors’ interests. We explain all three below.

Quick Answer: How a Pre-Pack Administration Works

The administrator is appointed. Within hours (sometimes minutes), the business is sold to a pre-arranged buyer under a sale agreement that was negotiated before the appointment. The buyer gets the assets, the contracts, your staff (via TUPE), and the trading name.

The old company is left as an empty shell that enters liquidation to distribute whatever proceeds the sale generated. Creditors of the old company receive the sale price, which is typically less than the face value of their debts.

We find that most directors who search for “pre-pack administration” are either considering buying their own business back after insolvency, or they are a creditor who has just been told the business was sold before they had a chance to object. Both groups need to understand the rules, the safeguards, and where the process can go wrong.

When a Pre-Pack Administration Is Used

Pre-packs are used when speed is essential to preserving value in your business. The scenarios you see most often:

• The business will lose key contracts or customers if there is a public administration. Some industries (construction, hospitality, professional services) lose contracts the moment insolvency is announced. A pre-pack completes the sale before the market finds out.
• Employees would leave. Skilled staff who hear about administration often resign immediately. A pre-pack transfers them to the new owner under TUPE before they have reason to leave.
• Perishable or time-sensitive assets. Stock that deteriorates, seasonal businesses, or companies with order books that expire if not fulfilled within days.
• No viable buyer exists other than the directors. In many small companies, the only people willing to buy the business are the people already running it. An open-market sale would find no buyer, and the business would close.

We stress that pre-packs are not inherently abusive. They are a legitimate tool that preserves value when a traditional sale process would destroy it. But they require proper safeguards, and those safeguards exist because the potential for abuse is real.

Pre-Pack Sales to Connected Parties: The 2021 Rules

Since June 2021, pre-pack sales to connected parties (directors, shareholders, or their associates) require either creditor approval or an independent evaluation by an “evaluator”, a qualified professional who assesses whether the sale terms are reasonable. This was introduced by The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021.

In practice, most connected-party pre-packs now go through the evaluator route because obtaining creditor approval before the sale defeats the purpose of the pre-pack (speed and confidentiality).

The evaluator reviews the valuation, the sale terms, and whether the administrator considered alternatives. Their report is filed with the Registrar of Companies.

We advise directors considering a connected-party pre-pack: the evaluator will scrutinise the valuation closely. An independent professional valuation of the business and its assets is essential.

A valuation you produced yourself, or one that conveniently matches what you can afford to pay, will not survive scrutiny. We have seen pre-packs challenged and unwound where the valuation was not credible.

What Happens to Creditors in a Pre-Pack Administration

Creditors of the old company receive whatever the sale generates, distributed through the statutory creditor priority order.

In practice, this means secured creditors recover from their charged assets, preferential creditors (employees, HMRC for certain taxes) receive their priority share, and unsecured creditors receive whatever is left, which is often nothing or pence in the pound.

The frustration for creditors is that the sale was agreed before they knew about it. By the time they receive the administrator’s proposals (within 8 weeks of appointment), the sale has already completed.

They cannot object to the sale itself, only to the administrator’s conduct. If the sale was at a proper valuation and the administrator followed the correct process, creditors have limited recourse.

We tell creditors who have been affected by a pre-pack: check the administrator’s Statement of Proposals (SIP 16 statement) carefully. It must explain why a pre-pack was chosen, what alternatives were considered, how the business was valued, and who the buyer is.

If the statement is thin, the valuation is unsupported, or no alternatives were genuinely explored, the administrator’s conduct can be challenged.

Pre-Pack Administration Costs

A pre-pack is still a full administration. The administrator’s fees typically start at £15,000 and can exceed £30,000 depending on complexity.

On top of that, the buyer must fund the purchase price, legal fees for the sale agreement, and TUPE-related costs for transferring employees.

Cost component	Typical range
Administrator fees	£15,000 to £30,000+ depending on complexity
Evaluator (connected-party only)	£2,000 to £5,000
Independent business valuation	£2,500 to £7,500
Legal fees (sale agreement, TUPE)	£3,000 to £10,000
Total budget for a connected-party pre-pack	£25,000 to £40,000 plus the purchase price

This is not cheap, but it is significantly less than your business would lose if it closed and the assets were sold at auction.

Section 216: Trading Name Restrictions After a Pre-Pack

If the new company uses the same or a similar trading name as the old company, section 216 of the Insolvency Act 1986 applies. You must do one of the following:

• Obtain court permission to use the prohibited name.
• Comply with the “successor company” exception by giving notice to all creditors of the old company within 28 days.
• Purchase the trading name as part of the business sale approved by the administrator. This is the route most pre-packs use.

Breaching section 216 is a criminal offence and makes you personally liable for all debts incurred by the new company during the breach. We have seen directors assume the pre-pack itself gives them automatic permission to use the old name. It does not. The section 216 requirements must be followed separately, and the administrator should confirm this is covered in the sale agreement.

Pre-Pack Administration: What to Do Next

If you are considering a pre-pack, you need an insolvency practitioner who has handled them before. The process is technically complex, the regulatory requirements are strict, and a badly executed pre-pack will be challenged by creditors and scrutinised by the Insolvency Service.

Company Debt connects directors with licensed insolvency practitioners who handle pre-pack administrations. A confidential consultation will assess whether a pre-pack is viable for your business and what the realistic costs and timeline look like.

FAQs on Pre-Pack Administration