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What is a pre-pack administration?
A pre-pack administration is an insolvency process where the sale of a company's business and assets is agreed before the administrator is formally appointed. The moment the administrator takes office, the sale completes. Often within the same day.
Creditors have no say. You are not consulted, not asked to vote, and not given the chance to object. You find out after it is done, usually by receiving a letter explaining that the company you supplied, worked for, or lent to has been sold to a new entity. The debts remain in the old shell. The business carries on as if nothing happened.
If the buyer is connected to the old directors (and it often is), it can feel like the people who owed you money have simply walked away from the bill while keeping everything of value.
How a pre-pack works (step by step)
- Directors realise the company is insolvent and approach an insolvency practitioner (IP).
- The IP values the business and its assets while still acting as an adviser (not yet appointed as administrator).
- A buyer is lined up. In connected party deals, this is often the directors themselves operating through a newly incorporated company.
- The IP is formally appointed as administrator by the directors or by court order.
- The pre-agreed sale completes immediately, typically within 24 to 48 hours of appointment.
- The old company is left as an empty shell holding all the debts. Creditors receive a SIP 16 statement explaining what happened.
What creditors typically receive
The reality is bleak. Unsecured creditors (suppliers, contractors, landlords, trade partners) typically receive between 0p and 5p in the pound. In many pre-packs, the dividend is zero.
- Secured creditors (banks with fixed or floating charges) are paid first from the sale proceeds.
- Preferential creditors (employees owed wages, HMRC for certain debts) come next.
- Unsecured creditors receive whatever is left, which is almost always nothing meaningful.
- The connected party buyer acquires the trading business at a fraction of its going-concern value.
The 2021 Pre-Pack Pool regulations
In April 2021, new regulations came into force targeting connected party pre-packs. Under the Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021, a connected buyer must now satisfy one of two conditions before the sale can proceed:
- Obtain an independent written opinion from a qualified evaluator (typically through the Pre-Pack Pool) confirming that the consideration is reasonable.
- Obtain creditor approval for the sale before it completes.
This was a significant change. Before 2021, connected parties could buy with no independent scrutiny at all. However, enforcement remains limited, and creditors should still exercise vigilance.
Your rights as a creditor
Right to information. The administrator must send you a SIP 16 statement within seven days of the sale, explaining why a pre-pack was chosen, what alternatives were considered, and what the assets were valued at.
Right to challenge. If you believe assets were sold at an undervalue, or the administrator did not act in creditors' interests, you can apply to court under paragraph 74 of Schedule B1, Insolvency Act 1986.
Right to vote. At the creditors' meeting (if one is called), you can vote on the administrator's proposals and question the conduct of the sale.
Right to report. You can report concerns to the Insolvency Service or to the administrator's recognised professional body (IPA, ICAEW, ICAS, or equivalent).
Who gets hurt by pre-packs
Suppliers left unpaid
You supplied goods on credit. The company entered administration and the business was "sold" to a new entity run by the same directors. Your invoices stay in the old shell. The new company places a fresh order as if nothing happened.
Contractors mid-project
You completed work, submitted your invoice, and the company pre-packed overnight. The new entity claims no liability for the old company's obligations. Your work was delivered but never paid for.
Landlords losing arrears
Your tenant pre-packed and a new company (same directors) took over the premises. Months of rent arrears are written off. The new entity negotiates a fresh lease on better terms, and you absorb the loss.
Recruitment agencies owed fees
You placed candidates, the company went into administration, and the same directors re-hired those candidates through a new entity. Your placement fees vanished with the old company.
Warning signs a pre-pack is coming
Pre-packs are designed to move fast. But there are signals that appear in the weeks before, if you know where to look:
- The company suddenly starts paying you late, or stops paying entirely.
- A director incorporates a new company with a similar name or in the same sector.
- Unusual charges are registered at Companies House (assets being ring-fenced for a secured creditor).
- Key assets (vehicles, equipment, IP) are being revalued or transferred.
- The company stops filing accounts or confirmation statements.
- Staff are being moved to a different payroll entity.
Detect pre-pack risk before it happens
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