So, what exactly is pre pack administration? Put simply, it involves selling an insolvent business prior to it being entered in to administration.
The buyers are often the previous directors of the business, and the details of the sale are concluded before an administrator is officially appointed.
They can do this because they are not actually buying their old company as such, because it will be a new legal entity by the time that the sale goes through.
Creditors do not have to be consulted before a pre pack administration is initiated.
This is a major advantage to the company because the move cannot be blocked, as it could be if they used a company voluntary arrangement.
However, this does not mean that the company can act without any regard to their creditors.
They must keep detailed records of the proceedings as at a later date they may have to give an explanation as to why pre pack administration was the right solution.
Under this process, the exact details of the sale of the business must be decided upon prior to the business actually being placed in to administration.
The administrators are able to conduct the sale of the business almost immediately.
As this process is a particularly sensitive one, and one which will affect, potentially, many other parties, everything must be done transparently and be fully documented.
Failure to do so could lead to repercussions later on.
A rigid framework is in place to stop people abusing the pre pack administration mechanism and it would not have received government backing if it were a fraudulent way of dealing with insolvency.
Directors not placing the interests of the company above their own are taking a real risk.
Directors found to be abusing the system can be taken to for their actions.
You should contact a company specializing in pre pack administrations if you think it is the best course of action for your own company.
Practitioners who specialize in pre pack administrations will be able to tell you whether it is advisable for you, and also guide you through the process to ensure that you do not breach any of the rules and regulations in place.