Administration (Pre Pack)
A pre pack Administration is an arrangement where the sale of all or part of the company business and assets is negotiated with a purchaser prior to the appointment of an Administrator, and the Administrator effects the sale immediately upon or shortly after his appointment. A pre pack sale avoids to the costs of trading, particularly where funds are not available. It also gives the best return for the creditors because speed is necessary to preserve the value of the company and its assets. This procedure allows for the goodwill and reputation to remain in place, jobs to be saved and contracts and work going forward to be maintained and completed.
Any pre packaged Administration sale should be compliant with SIP 16. SIP 16 was introduced in January 2009 to counter creditor concerns that pre pack sales were not in their best interest. SIP 16 requires IPs involved in pre pack sales to keep detailed records of the reasoning behind the decision to undertake a pre pack.
The Pre Pack Pool is an independent body of experienced business people who will offer an opinion on the purchase of a business and/or assets from an Administrator of an insolvent company, where a connected party is involved.
The Pool has been set up in response to a series of recommendations contained in the Graham report on pre packaged administrations. Those recommendations were endorsed by Government, and an Oversight Group comprising of regulators, trade bodies and other stakeholder organisations from the business community who have come together to implement the recommendation for the formation of a Pre Pack Pool.
The Pool, through its members, operates only to review and provide an opinion on applications made voluntarily by connected parties. It provides optional, external scrutiny of transactions, which may provide creditors with some additional reassurance that a proposed purchase by those previously connected to the insolvent company is not, in the Pool members’ opinion, unreasonable.
If the Pool members consider the sale to the connected party is not unreasonable, they will issue a response to the effect that it is not unreasonable to proceed. Alternatively, they may state that they have not seen sufficient evidence to be satisfied as to the grounds for the pre pack transaction. The Pool member will not give reasons for his/her opinion. However, if they are minded to issue a not reasonable opinion but is unable to do so due to a lack of supporting evidence in specific areas, then they may highlight this in the opinion issued.
Creditors should be provided with a detailed explanation and justification of why a pre packaged sale was undertaken as they are not given an opportunity to consider the same. The report will disclose information including the source of the Administrator’s initial introduction, the extent of their involvement pre appointment, the alternative courses of action that were considered, the valuations obtained of the business or assets and why it was not appropriate to trade the business and offer it for sale as a going concern during the Administration, amongst other things.
A process whereby the directors, shareholders and/or a floating charge holder seeks to place the company into Administration, this gives the company protection from its creditors by prohibiting them from taking or pursuing legal action against the company. The appointed Administrator, who is a licensed Insolvency Practitioner, manages the company on a temporary basis with a view to rescuing the whole or part of the company as a going concern. With the assistance of the directors, consideration is given to any operational changes or restructuring necessary to take the company forward. The aim of the process is to achieve a better result for the company’s creditors as a whole than would be likely if the company was put into Liquidation. If this cannot be achieved the Administrator is to realise the company’s property to make a distribution to the company’s secured or preferential creditors.
An Administration may be exited by way of a Company Voluntary Arrangement, Liquidation or Dissolution.
An Administration automatically ends after a period of 12 months unless extended by the Court.
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