Day: March 16, 2024

Prepack LiquidationPrepack Liquidation

Prepack liquidation is a quick, cost effective and legally sound solution that allows an insolvent company’s directors to buy their assets/business and use them in a new entity (‘newco’).

Unlike the formal insolvency process of a winding-up petition, a pre-pack sale is private, cutting down on costs and allowing business continuity to be maintained. Moreover, the speed of the sale means that a pre-pack is often less disruptive to employees and suppliers than other insolvency processes.

However, the prepack sales process can raise a number of concerns amongst creditors, particularly the lack of transparency and questions about whether or not a good return was achieved for the creditors of the oldco. During the pre-pack administration process, IPs work closely with potential purchasers to ensure the sale is compliant with UK insolvency laws and that the sale price is fair to the company’s creditors.

The Role of an Insolvency Practitioner: Insights and Responsibilities

A key consideration is that a newco must be a viable company with funding in place to purchase the assets/business of the oldco at a reasonable value. It is also important that the newco must have a good track record and can demonstrate a willingness to invest in the future of the business, and can prove its financial viability to prospective funders.

There are a range of specialist lenders who can help finance the acquisition of the business and assets in a pre-pack. These include providers of factoring, asset-based lending and loans as well as venture capital companies. It is important that any lender is vetted thoroughly, and personal guarantees may be required from the directors of newco especially in cases involving small-medium enterprises (SMEs).