A “pre-pack” (short for pre-packaged) is a sale of some, or all, of a company’s assets which is agreed in principle prior to the commencement of insolvency proceedings but only concluded upon, or immediately after, the insolvency practitioner’s appointment.
The primary reason for a ‘pre-pack’ is to obtain a greater value for the company’s assets than would be achieved after the commencement of the insolvency proceedings when public knowledge of the insolvency is likely to have a detrimental affect on the viability of the business when it will be more difficult to retain employees, suppliers and customers.
If the company were to continue trading after the commencement of the insolvency proceedings whilst the business was marketed, the business would need funding, which is usually not available, and there would also be the additional costs of the insolvency practitioner and his staff in supervising the business.
To ensure that there is transparency regarding the sale, which will certainly be of interest to creditors if the sale was to the directors of the insolvent company, ‘Statement of Insolvency Practice 16’ describes what information the insolvency practitioner must provide with his explanation of why a ‘pre-pack’ sale provided the best outcome for creditors.
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