Understanding Pre-Pack Administration: A Strategic Approach to Business Rescue

09 Oct 2025

By Craig Darling Partner, Corporate, at Gilson Gray.

In the challenging world of business recovery and insolvency, pre-pack administration is a widely debated, yet often misunderstood, tool. Frequently used to salvage viable businesses that are facing financial collapse, a pre-pack can offer a fast, effective solution, but not without controversy. This blog explores what a pre-pack administration is, why it’s used, who is responsible, and what to consider before proceeding.

What is a Pre-Pack Administration?

A pre-pack administration is a type of insolvency procedure where the sale of a company’s business or assets is negotiated in advance of the company formally entering administration. The sale is then executed immediately or shortly after the appointment of administrators.

Unlike traditional administration, where the business is marketed and sold after administrators take over, a pre-pack offers the advantage of speed. This approach aims to preserve the value of the business, maintain operations and protect jobs.

Why Are Pre-Packs Used?

Pre-packs are typically used in situations where:

• The business is fundamentally viable but struggling financially.
• A quick sale is required to preserve value (e.g. customer goodwill, contracts, or intellectual property).
• Continuing to trade during administration would erode the company’s worth or increase liabilities.

By arranging the sale in advance, stakeholders – such as directors, lenders or potential buyers – can avoid the reputational damage and operational disruption that often comes with a prolonged insolvency process.

Legal Framework and Director Duties

Pre-packs in the UK are governed by a combination of legislation and professional standards, including:

• Insolvency Act 1986
• The Insolvency (England and Wales) Rules 2016
• The Insolvency (Scotland) (Company Voluntary Arrangements and Administration) Rules 2018
• Statement of Insolvency Practice 16 (SIP 16)– which ensures transparency
• The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 202– requiring independent scrutiny when sales are made to connected parties.

Directors play a crucial role prior to administration. Once a company becomes insolvent or likely to become insolvent, directors must prioritise the interests of creditors. They are responsible for avoiding wrongful trading, seeking early advice from insolvency practitioners, and ensuring that any decisions, especially those around a pre-pack, are well documented and justified.

Administrator Responsibilities

Upon appointment, the administrator must act in line with one of three statutory objectives:

1. Rescue the company as a going concern;
2. Achieve a better result for creditors than in liquidation; or
3. Realise property to make a distribution to secured/preferential creditors.

Administrators are expected to ensure the sale is fair, properly valued, and, if possible, marketed. Under SIP 16, a detailed report must be provided to creditors within seven days of the sale, outlining the justification for the pre-pack, any valuation reports, and the rationale behind selling to any connected parties.

Pros and Cons of Pre-Pack Administration

Advantages:

• Speed and certainty:The business continues operating with minimal disruption.
• Value preservation:Goodwill, contracts, and employees are protected.
• Job retention:Employees typically transfer under TUPE regulations.
• Lower costs:Reduced trading period saves on administration expenses.

Disadvantages:

• Transparency concerns:Especially when the sale is to previous directors or shareholders.
• Creditor dissatisfaction:Unsecured creditors are often not consulted and may receive little return.
• Perceived unfairness:May raise suspicion if the process appears to favour insiders.
• Potential for legal challenge:Sales can be scrutinised for being undervalued or biased.

Common Pitfalls and Considerations

While pre-packs can be highly effective, they must be handled with care. Some key issues include:

• Regulatory compliance:Failure to follow SIP 16 or the 2021 regulations can result in investigations.
• Valuation and marketing:Skipping these steps, even under time pressure, increases legal risk.
• Documentation:All decisions, advice, and sale terms should be thoroughly recorded.
• TUPE implications:Employee rights must be carefully managed.

Ultimately, transparency, independent advice, and good communication with creditors are critical.

Documentation and Timelines

The typical pre-pack process can take as little as two to four weeks and involves:

• Company review and advisor engagement
• Independent valuations
• Negotiation of the Sale and Purchase Agreement (SPA)
• Appointment of administrators and immediate execution of sale
• Post-sale disclosure to creditors (within 7 days)
• Administrator’s full proposals (within 8 weeks)

Documentation includes engagement letters, valuation reports, SPA, board minutes, SIP 16 disclosure, and, in connected sales, an independent evaluator’s report.

Conclusion

Pre-pack administrations remain a vital tool for restructuring professionals and company directors seeking to preserve value in distressed businesses. However, they require a high degree of transparency, legal compliance and professional judgment to balance the interests of all stakeholders.

Used appropriately, a pre-pack can be the difference between a failed insolvency and a successful business rescue.

To discuss any of the points raised further, please contact a member of our Corporate law team here.

The information and opinions contained in this blog are for information only.  They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice.  Before acting on any information contained in this blog, please seek solicitor’s advice from Gilson Gray.