A pre-packaged sale (hence the term, ‘pre-pack’) refers to an arrangement under which the sale of all or part of a company’s business or assets is negotiated with a purchaser prior to the appointment of an administrator, and the administrator pushes forward the sale immediately, or shortly after, his/her appointment.
The rationale for a pre-pack is very logical, and it is a very valuable mechanism for the preservation of a business going through an insolvency process. During the last recession the strategy adopted was invariably the appointment of administrative receivers who would continue to trade a business whilst seeking a purchaser as a going concern.
This strategy is often still appropriate however, it has the potential disadvantage of a gradual erosion of the value of the business as customers seek to find alternative suppliers in case the business cannot be sold. The pre-pack avoids this however, the potential criticism could be that the business has not been properly marketed and therefore full value for the business is not obtained. Where the business has been purchased by management such criticisms are accentuated, whether real or not.
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