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What is a pre-pack?

Immediately on his or her appointment the administrator may sell the business and assets of the company to a pre-arranged purchaser.  This is called a pre-pack, because the deal has been packaged up and agreed before the administration starts.

 

Since customers, suppliers and employees may not be aware that the company is in financial difficulties until after the pre-pack has completed, the new purchaser has the opportunity to reassure them all that the business will continue.  Indeed, a purchaser will usually emphasise that the new company is now leaner and stronger and would be able to provide a better service or quality of goods.  Accordingly, preserving the goodwill in the business increases its value, which means that the administrators get a better price than if the business assets had been sold by a liquidator in a “fire sale”.

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