Pre-pack Administration Explained: Insolvency Procedure

Dave Broadbent, partner at BTG, explains what a pre-pack administration is, how the
process works, and what obligations an insolvency practitioner holds throughout.

What is a pre-pack administration?

Pre-pack administration is an arrangement in which the sale of a business, or its
assets, are negotiated before the formal appointment of an administrator. Once the
administrator is appointed, the sale completes immediately or within a very short
timeframe. The result is that the transaction has, in effect, already been agreed
before the insolvency procedure formally begins.

To understand how a pre-pack works, we will look at what obligations are placed on
the insolvency practitioner involved, and what safeguards exist for creditors and
other stakeholders.

How does pre-pack administration work?

The process typically begins when a company in financial difficulty engages a licensed
insolvency practitioner in an advisory capacity. At this pre-appointment stage, they
work with the directors to assess the viability of the business, identify a potential
buyer, and negotiate the terms of a sale. This buyer may be a third party or a connected
party, such as existing directors or shareholders.

This distinguishes a pre-pack from a standard administration, in which the administrator
takes control of the company, trades it for a period, and then markets the business
or its assets before concluding a sale. In a pre-pack, the marketing and negotiation
happen before appointment; the administration itself is the mechanism through which
the transaction is completed.

A business’s value can deteriorate rapidly once insolvency becomes public knowledge.
By completing the sale at the point of appointment, rather than after a period of
trading in administration, the pre-pack can preserve more of the business’s going
concern value than a longer process might allow.

What is the legal framework for pre-pack administration?

Pre-pack administrations are governed by the Insolvency Act 1986, Statement of Insolvency Practice 16 (SIP 16), and where a connected party is the buyer, The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations
2021.

The safeguards in place for pre-pack administrations are substantial. SIP 16 requires
the insolvency practitioner to provide creditors with a detailed disclosure document
setting out the basis for the pre-pack decision, the marketing conducted prior to
appointment, the valuations obtained, and the reasons why the pre-pack was considered
to produce a better outcome than the available alternatives. The 2021 Regulations
add a further layer of checks for connected party transactions.

Connected party sales

The identity of the buyer has significant implications for the obligations placed
on the insolvency practitioner. Where the sale is to an unconnected third party, the
insolvency practitioner must still comply with SIP 16 disclosure requirements, but
fewer restrictions apply to the process itself. Where the buyer is a connected party,
such as a director, shareholder, or a company under their control, the requirements
are considerably more stringent.

The 2021 Regulations introduced a specific requirement for connected party pre-packs:
before the sale can proceed, the insolvency practitioner must either obtain a written
opinion from an independent evaluator confirming that the transaction is reasonable
or secure the consent of creditors.

The independent evaluator must have appropriate experience and must not have a conflict
of interest. Their role is not to approve the sale unconditionally, but to assess
whether the consideration being paid and the terms of the transaction are reasonable
in the circumstances.

What are the advantages of pre-pack administration?

When conducted properly, pre-pack administration can deliver meaningful results for
multiple stakeholders, not just the buyer or the directors. Key advantages include:

• Business continuity: the business continues trading without interruption, preserving customer relationships, supplier contracts, and employment.
• Speed: the sale completes at the point of appointment, minimising the deterioration of value that typically accompanies a period of trading in administration.
• Cost efficiency: reduced administrator fees compared to a full trading administration, which can improve the overall return to creditors.
• Creditor outcomes: in some cases, a pre-pack may generate a better return for creditors than a prolonged process. The insolvency practitioner must be able to demonstrate that the pre-pack represents the best available outcome for creditors. Pre-appointment marketing activity, independent valuations, and documented consideration of alternative outcomes are what distinguish a well-evidenced pre-pack from one that may be challenged.

What does pre-pack administration mean for creditors?

The Insolvency Act 1986 sets out the priority order in which creditors are paid, this
applies to pre-pack administration. Under SIP 16, creditors are also entitled to receive
the disclosure document prepared by the insolvency practitioner. This sets out the
rationale for the pre-pack, the extent of pre-appointment marketing, the valuations
obtained, and the comparison with alternative outcomes.

Employees of the transferring business are protected under The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), which means their terms and conditions of employment transfer to the new
entity. This is a significant protection in practice, given that preserving employment
is frequently cited as one of the primary justifications for a pre-pack structure.

Following completion of the sale, the insolvency practitioner continues to owe obligations
to creditors in their capacity as administrator, including reporting on the conduct
of the administration and, where assets remain, making distributions in the order
of priority prescribed by the Insolvency Act 1986.

Summary

Pre-pack administration is an effective insolvency tool. The insolvency practitioner
sits at the centre of the process at every stage: as adviser before appointment, as
administrator upon it, and as the professional accountable to creditors, their regulatory
body, and the courts throughout.

About the author

Dave Broadbent, Partner at BTG, a leading AIM-listed financial and real estate advisory group. BTG’s insolvency
and restructuring division provides corporate insolvency and business restructuring
services, including administration, pre-pack administration, CVA, and liquidation.

See also

Place an insolvency notice

What is the role of an insolvency administrator?

Find out more

Insolvency Act 1986 (Legislation)

Statement of Insolvency Practice 16 (Insolvency Practitioners Association)

The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations
2021 (Legislation)

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (Legislation)

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Publication date

20 March 2026

Any opinion expressed in this article is that of the author and the author alone,
and does not necessarily represent that of The Gazette.