Time to Pack Up the Phoenix Pre-Pack?


As our readers will know, a pre-pack is the process of selling the business and assets of a company immediately after it has entered into an Insolvency Act administration procedure. Pre-packs are a frequently used mechanism as they ensure that the value of a business does not ebb away through a protracted insolvency sale process. But the advantage of moving fast has to be counterbalanced with the perception the unsecured creditors will inevitably form: that they have been left with an unsecured claim against the rump insolvent entity, whilst the profitable business is hived off to a new company, without their prior knowledge or consent. Although the proceeds of the sale will be paid to the insolvent entity, it seems that there is rarely anything left over for the unsecured creditors after the administrator’s fees have been satisfied and any secured lenders paid out.

This perception of sharp dealings is exacerbated where the buyer is, or is connected with, the previous management. The allegation is very often that the business was not properly marketed and its full value not achieved.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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