Day: March 16, 2024

What Is a Prepack?What Is a Prepack?

Prepack is an insolvency term that describes a number of arrangements and processes across a range of jurisdictions. Although they are widely used, there is a lot of variation in terms of how they work.

There are some core benefits of a pre pack administration that help to make it a popular option. These include:

Business continuity: Insolvency is not good for business so a quick and relatively smooth transfer of the business through a pre-pack can be advantageous. This can be especially important where customers, suppliers and employees are concerned about a break in trading or the potential of the company being liquidated.

Exploring Prepack: An Alternative Insolvency Solution

Value protection: It is often the case that news of a company’s insolvency will lead to value diminution in the marketplace, as customers, suppliers and employees lose confidence or start shopping elsewhere. This can be mitigated by completing a pre-pack sale to a newco before this occurs.

Job-saving: Pre-packs often result in many staff keeping their jobs as the company is sold to a newco. This is because employees contracts are transferred to the newco via TUPE regulations.

Despite these benefits, the use of pre-packs is not without its critics, with some arguing that they lack transparency and are unfair to certain creditors. This is particularly true where the sale is to a connected party such as the directors, shareholders or previous owners of the original company. To counter this, Statement of Insolvency Practice (SIP) 16 requires IPs to provide a report from an independent evaluator following the completion of a pre-pack sale to a connected party.