Administration & Pre-Pack Administration: What Directors Need to Know
Administration changes who controls the company. A pre-pack changes how a business sale is prepared and executed.
In administration, an insolvency practitioner is appointed as administrator. Administration can provide protection from certain creditor action while the administrator pursues the statutory purpose, which can include rescue, a better result for creditors than immediate winding up, or realisation of property for secured or preferential creditors.
A pre-pack generally involves negotiating a sale of all or part of the business or assets before administration, with the administrator completing the sale on or shortly after appointment.
What this means for the director
Administration is not simply: "Carry on trading but do not pay the old debts." Control changes. An administrator takes responsibility for the company within the administration process.
For a pre-pack, the speed of the transaction can preserve business value, contracts and employment, but the sale remains an insolvency transaction subject to rules and scrutiny. A substantial disposal of the company’s business or assets to a connected person within the first eight weeks of administration is subject to specific statutory safeguards, including creditor approval or the required independent evaluator process.
What happens next
Administration: appointment, then the administrator takes control, then financial and business assessment, then proposals, then rescue, restructuring, sale or asset realisation, then exit from administration.
Pre-pack: pre-appointment planning, marketing and negotiations, then the administrator is appointed, then the administrator decides whether the sale is appropriate, then the sale completes quickly where justified, followed by creditor reporting and the subsequent administration process.
Administration compared with a pre-pack
| Administration | Pre-pack |
|---|---|
| Formal insolvency process | Sale mechanism used within administration |
| Administrator takes control | Sale prepared before appointment |
| Business may trade during the process | Sale often completes quickly after appointment |
| Several possible outcomes | Focus is sale of the business or assets |
Issues to establish
Is the underlying business viable? What creates value? Which contracts and customers need preserving? Is there a potential purchaser? Is that purchaser connected to existing directors or shareholders? What secured lending exists? What assets are subject to finance? What happens to employees? What guarantees exist? What working capital would a purchaser or new business require?
Questions directors usually ask
Can I buy the business back?
Connected-party transactions can occur, but specific scrutiny and regulatory requirements can apply. It is not simply a matter of transferring the business into a new company.
Does administration wipe out my personal guarantees?
No. Personal guarantees are separate obligations.
Do directors remain in control?
The administrator controls the administration and company affairs within that process.
Related authority pages
General information disclaimer
General information only. Insolvency, tax and director-liability outcomes depend on individual circumstances. Nothing on this page constitutes legal, tax or insolvency advice. Where insolvency is suspected, advice from an appropriately qualified professional should be obtained promptly.
Establish your position
Saving the business and saving the existing company are not always the same objective. Establish what has value, what carries liability and what outcome is realistically achievable.