A pre-pack is a formal procedure where there is a viable business which due to its liabilities is insolvent but where there is a buyer or buyers identified (sometimes some or all of the existing directors and/or management team. Prior to the appointment of the administrator, significant discreet marketing of the business and assets is carried out to ensure that any sale is for the optimum value. When a sale is agreed, it is completed immediately following the appointment of the administrator who has to report to their licensing body and creditors that the sale represents the best available return to creditors.
A company had only traded for a few years and had received a significant amount of investment since it was founded. At the initial meeting the directors confirmed they believed the product needed more investment before it would become profitable but the current investors were not prepared to put more money in. If a purchaser for the business could not be found the company would have to cease to trade and be placed into liquidation.
The directors were aware of several parties that may be interested in acquiring the business and made some discreet enquiries. One of these parties made an offer for the assets and business. The business was marketed for a short period to ensure there were no other parties not already identified that may pay more and following negotiations a sale document was agreed before the administration commenced.
Immediately upon the appointment of administrator, the business, assets, goodwill and intellectual property were sold to the purchaser. As a result of the procedure the business was able to continue with very little disruption. The staff including the directors retained their employment.
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