Disadvantages of a Pre-Packaged Administration


A pre-packaged administration is a process where the sale of key assets of a company is agreed in advance of the insolvency process and implemented by the administrators shortly after their appointment. It’s a tool that can help to rescue businesses and minimise the loss of value that can occur during a prolonged period of trading in administration and to repair relationships with employees, customers and suppliers.

A quick sale at a fair price preserves the brand image of the company, reduces the damage to public perception and helps to save jobs, which also contributes to the return on creditors’ claims. It also allows for the termination of old contracts and frees up cash-flow for the new business, helping to minimise disruption and avoid a negative impact on trading.

Pre-Packaged Administration

However, a pre-packaged administration can have disadvantages. For example, the absence of extensive marketing means that the sale may not be fully tested, potentially resulting in lower returns for unsecured creditors. There is also the possibility that the directors of the insolvent company will cherry pick assets to form a ‘phoenix’ company, removing their liabilities while leaving debts behind, which can lead to poor publicity and potential legal action.

As a result, new rules have been introduced to address these issues. These changes restrict sales to persons who are ‘connected’ with the insolvent company and introduce transparency requirements to limit the risk of such sales. The new regulations also include provisions for a review of the sale prior to its implementation.

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