- In light of the company’s directors acknowledging an unavoidable administration or insolvent liquidation, they sought guidance from an insolvency practitioner. After careful consideration, the directors concluded that a pre-pack sale within an administration would be a viable solution.
- To assess the value of the company’s business and assets and gauge market interest, the insolvency practitioner assisted the directors in devising and executing an accelerated sale process.
- Subsequently, offers were received for the company’s business and assets, revealing that appointing the insolvency practitioner as the administrator would yield the optimal outcome for the company’s creditors. This would enable the insolvency practitioner to swiftly finalize the pre-pack sale upon assuming the role of administrator.
- Once the parties reached a consensus on the terms of a sale and purchase agreement, along with any supplementary documentation, these arrangements were agreed upon prior to the appointment of the administrator.
- To ensure a seamless transition, certain commitments were made, which would take effect immediately upon the administrator’s appointment. These undertakings were specifically designed to facilitate the completion of the sale and purchase moments after the administrator’s official assumption of duties.
- Consequently, the administrator was appointed, marking the culmination of the pre-pack sale process.
What to expect in the sale and purchase agreement?
The sale and purchase agreement will provide clear specifications regarding the assets that are encompassed within the sale, such as goodwill, plant and machinery, customer contracts, and stock. It will also outline the assets that are not part of the sale, including book debts, claims, and prepayments.
It’s important to note that the specific assets included or excluded may vary from sale to sale, and there may be instances where assets within the same category are divided between those included and those excluded. For instance, profitable customer contracts may be included, while unprofitable customer contracts may be excluded, ensuring a well-defined and tailored approach to the transaction.
It is customary for the sale and purchase agreement to explicitly exclude the buyer from assuming most of the seller’s debts and other liabilities. This means that, in general, the buyer is not held accountable for such obligations, unless there are specific legal provisions that impose responsibility on the buyer, as is the case with TUPE (Transfer of Undertakings Protection of Employment) regulations. These provisions ensure that the buyer’s liability is limited to the extent required by law, allowing for a clear and delineated allocation of responsibilities in the transaction.
To optimise the financial outcomes during the seller’s administration, the administrator may request the buyer’s cooperation in assuming a select few of the seller’s existing obligations. This could involve honoring warranty claims, particularly if it aids the administrator in recovering book debts.
However, in a typical pre-pack sale scenario, the buyer primarily acquires the necessary assets to operate the business, unburdened by any claims related to the seller’s liabilities. Conversely, the seller retains ownership of assets that are not required by the buyer, such as book debts, along with the associated liabilities. This approach ensures a streamlined transfer of assets and liabilities, enabling the buyer to focus on efficiently managing the acquired business.
The sale and purchase agreement, apart from the aforementioned considerations, will primarily be formulated in favor of the seller and the seller’s administrator. It will be structured in a way that excludes representations and warranties, placing the responsibility for any risks associated with the transferred business and assets squarely on the buyer.
This approach is justified by the limited familiarity the administrator has with the business and assets, as well as the necessity to distribute the sale proceeds to the seller’s creditors. Imposing representations and warranties on the seller would impede the administrator’s ability to carry out this distribution effectively.
Furthermore, the agreed-upon price for the business and assets reflects the understanding that the buyer willingly assumes all relevant risks, providing further justification for the approach taken in the agreement.
Advantages and Disadvantages of a Pre-pack Sale
The benefits of a pre-pack sale strategy depend on the exact circumstances, but here are a number of pro’s and con’s include:
Five Facts About “What is a Pre Pack Sale”:
- ✅ A pre-pack sale is a process through which a company enters administration and its business and assets are immediately sold by the administrator under a sale that was arranged before the administrator was appointed.(Source: Team Research)
- ✅ The typical steps involved in a pre-pack sale include the company’s directors recognizing the need for administration or liquidation, taking advice from an insolvency practitioner, conducting an accelerated sale process, receiving offers for the business and assets, and agreeing on the terms of a sale before the administrator is appointed.(Source: Team Research)
- ✅ In a pre-pack sale, the sale and purchase agreement distinguishes between included assets (such as goodwill, plant and machinery, and customer contracts) and excluded assets (such as book debts and prepayments), and the buyer usually assumes minimal liability for the seller’s debts and liabilities.(Source: Team Research)
- ✅ The main advantage of a pre-pack sale for the company’s directors is that it is the administrator’s decision to complete the sale, protecting the directors from allegations of breaches of duties and claims.(Source: Team Research)
- ✅ The benefits of a pre-pack sale strategy can include a quick and smooth transfer of a company’s business and assets, minimal erosion of confidence among suppliers, customers, and employees, and the potential to save more jobs compared to other insolvency strategies.(Source: Team Research)
FAQs about What Is A Pre Pack Sale
What are the typical steps involved in a pre-pack sale?
A typical pre-pack sale in a company administration involves the company’s directors recognizing the need for administration, seeking advice from an insolvency practitioner, planning and carrying out an accelerated sale process, receiving offers for the business and assets, agreeing on sale terms before the administrator is appointed, giving undertakings for post-appointment completion, and finally, the appointment of the administrator and completion of the pre-pack sale.
What advantages do the company's directors have in completing a pre-pack sale?
The main advantage for the company’s directors is that it is the administrator’s decision to complete the sale, not the directors’. This suspends the directors' powers and protects them from allegations of breaches of duties and claims. If creditors are unhappy with the sale, they would typically need to challenge the administrator's actions rather than the directors' actions.
What assets are included and excluded in a pre-pack sale?
The sale and purchase agreement will distinguish between the assets included in the sale (such as goodwill, plant and machinery, customer contracts, and stock) and the assets excluded from the sale (such as book debts, claims, and prepayments). The specific inclusion or exclusion of assets may vary from sale to sale.
What are the benefits of a pre-pack sale strategy?
The benefits of a pre-pack sale strategy can include a quick and smooth transfer of the company's business and assets, minimisation of erosion of confidence among suppliers, customers, and employees, and potential to save more jobs compared to other insolvency strategies or processes.