A pre pack pool is a group of impartial experts tasked with examining the circumstances surrounding a “connected party” in a pre pack transaction and compiling viable solutions.
The creation of a “pre pack pool” aims to promote more openness and, as a result, increase trust in the pre pack system.
It is a group of independent, seasoned businesspeople who will provide an opinion on the purchase of a firm and/or its assets by affiliated parties in situations when a corporation is entering administration and a pre-packaged sale is being considered.
What is the pre pack pool and how does this affect the administration of a company?
Some or all of a company’s assets may be sold when it enters administration in order to raise money to pay creditors. An administration pre-pack sale differs slightly from a typical pre-pack sale in administration that the underlying assets of a company are appraised and advertised for sale before the administrator is appointed.
One or more of the current directors could be the best buyer, according to the insolvency practitioner in charge of the sale. Everybody who is a part of the sale benefits. Negative publicity frequently has no effect on trade, jobs may be saved, and creditors should get the best dividend return possible.
A change to the pre pack rules
However, this insolvency approach has faced criticism in the past because many creditors were sceptics about its morality. The possibility that a party associated with the collapsed business could buy the assets adds to the general concern among creditors, some of whom might not even be aware that a sale is happening.
It’s a widely held belief that directors simply transfer from one failing company to another under a different name. To allay these worries and put a stop to a perceived lack of openness inside the system, pre pack administration regulations have been modified.
A “pre pack pool” and the revised Statement of Insolvency Practise (SIP 16) both aim to promote better openness and, as a result, boost public trust in the pre pack system.
What then will be the new prepack administration regulations, and how will they deal with these problems?
An independent opinion and greater transparency
A prepack pool of seasoned, independent business owners has been established. An individual pool member will evaluate the specifics of a “connected party” pre-pack sale and then provide an assessment of its viability.
Current directors, shareholders, or members of their immediate families are typically considered connected parties. A pool member will review the information provided by the connected party, who is frequently a director of the failed firm. While this member’s judgement is valuable as an impartial one, it does not have the authority to change the sale, which is ultimately in the administrator’s control.
How the Pool will work?
Through a safe online interface, the linked party will submit an application to the Pool. The impartial Pre-pack Pool reviewer will provide one of three opinions based on the given information:
- The pre-pack is not unreasonable.
- The case for a pre-pack is not unreasonable but there are minor limitations in the evidence provided.
- The case for a pre-pack hasn’t been made.
The Pool, run by Pre-pack Pool Limited, operates under the user pays model. Each application will cost £800 plus VAT to complete.
Make sure related parties are aware of their ability to contact the Pre-pack Pool before they decide to purchase a company’s assets or business through a pre-pack purchase. This is the responsibility of insolvency practitioners (IPs).
Candidates will have the option to consent to the opinion being submitted to the administrator automatically through the process. In order to facilitate disclosure in the administrator’s SIP 16 statement, IPs could want to encourage applicants to do so
The prepack pool application may also involve a viability analysis. This should outline the steps being taken to secure business survival for at least a year as well as how operations will be different from those of the failing company.
If payment for the acquisition of assets is postponed, a viability study is especially crucial since it increases confidence in the company’s long-term ability to operate economically.
Within 48 hours of an application being received, the pool participant is expected to offer their opinion. Prepack sales are by their very nature a quick procedure, so a 48-hour time limit has been imposed as a guide to prevent any unnecessary hiccups.
The reviewer’s opinion
A prepack pool application has three possible outcomes:
- Nothing found to be unreasonable: sufficient information has been provided by the buyer, and there is nothing to suggest that the proposed purchase is unreasonable
- Limited evidence: although supporting evidence is limited, nothing unreasonable has been found in the evidence provided
- Not enough evidence: there is insufficient evidence or information to persuade the pool member that a pre pack sale is a reasonable proposition.
Even if a pool participant is unable to express support, the administrator still has final say over the transaction. According to SIP 16 regulations, one of their responsibilities is to explain every decision they make to the creditors and any other interested parties.
Marketing of the business assets
Correct marketing of the firm assets is essential if creditors are to have faith in the procedure. A formal, well-planned strategy is required, including both traditional and online marketing channels, to ensure that a wide audience is aware of the sale’s happening.
The Administrator shall set up in full the manner in which the business was promoted in their written statement to creditors. Creditors will look closely at the channels used and the amount of time that assets were on the market.
Specific disclosures during a pre pack sale
SIP 16 requires detailed information on a number of pre pack administration-related issues. These consist of:
- Whether or not the administrator was involved with the company prior to appointment
- The extent of any consultations with creditors
- Why attempts were not made to market the business as a going concern
- How the assets were valued, and by whom
- Details of the marketing strategy used
- The amount achieved on sale
- Details of who bought the assets, and if they were a connected party
Unsecured creditors will naturally want to maximise their return on sale, and transparently demonstrating that their interests have been prioritised in a potentially contentious process.
Pre-pack sales have several benefits for businesses, not the least of which is the maintenance of operations and employment. Although it is a helpful tool for corporate rescue, creditors’ duties must be carefully followed.
The pre pack pool ensures that every facet of the pre pack sale has been carefully considered. These impartial experts work diligently to give a complete analysis of the situation and feasible solutions that have been carefully considered.
The pre pack system makes a huge step towards a more open and reliable future with the addition of the pre pack pool. It ensures that the interests of all parties concerned are taken into account by assembling a panel of objective specialists, creating an atmosphere where confidence can develop.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.