What is a Pre-Pack?
Thursday, March 12, 2009 11:01
When a business is facing financial distress, advice must be sought to help save it. Action must be taken early. Pre-pack is one of the options available.
A pre-pack is a deal for the sale of an insolvent company’s business or assets, which is put in place before the company goes into a formal insolvency process, usually administration. The deal is usually agreed before the insolvency practitioner is formally appointed and then rapidly executed once the appointment is made.
Pre-packs have been used for many decades and have increased in volume following the Enterprise Act of 2002. In 92% of pre-pack deals all jobs are saved. Pre-packs also provide a better return for secured creditors when compared with their prospects should the comopany be liquidated.
Pre-packs tend to be most useful for owner-managed businesses and those where most of the value in the business is in key staff or assets that may leave or lose considerable value once the administration process is announced. Hence, the business is usually sold with little or no open marketing. Unsecured creditors are normally only informed of the pre-pack after it has been completed. By contrast, secured creditors are often aware of the transaction ahead of the finalised deal as it will generally require them to release their security.
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