A "Pre-packaged" Sale - What Is It?
A pre-packaged sale (or ‘Pre-Pack’) is where a sale of a Company’s business is agreed prior to Administration, with the sale taking place post-administration. This allows a purchaser to acquire the assets of a business without its liabilities (with a few exceptions such as employees covered by TUPE).
Often, a pre-packaged sale is to a connected party, resulting in controversy surrounding such sales.
Following significant criticism in the press of sales negotiated and agreed pre-administration and enacted shortly after (particularly to connected parties), in 2013, Vince Cable, then Business Secretary, commissioned Teresa Graham CBE to undertake an independent review of the process (the Graham Report), as part of the Government’s wider ‘Transparency and Trust’ agenda.
Following the results of the review, ‘Pre-Pack Pool Limited’ was established in March 2015.
The ‘Pre-Pack Pool’ went live on 2 November 2015, and the new Statement of Insolvency Practice 16 became effective from 1 November 2015. This follows the recommendations in the Graham Report in relation to Pre-Packaged sales in Administrations.
From 2 November 2015, potential purchasers may make an application to the pool (for a fee, currently £800+VAT) to obtain an opinion from one of its panel. Use of the service is voluntary, and the fee is payable by the applicant.
The aim of the pool is to reassure creditors that an independent person has considered the reasonableness of the proposed transaction and assist with transparency.
The pool member will offer one of the three following opinions:
- Nothing has been found to suggest that the grounds for the proposed pre-packaged sale are unreasonable; or
- Evidence provided has been limited in some areas, but otherwise nothing has been found to suggest that the grounds for the proposed pre-packaged sale are unreasonable; or
- There is a lack of evidence to support a statement that the grounds for the proposed pre-packaged sale are reasonable.
Whilst an administrator may still accept an offer from a connected party and proceed with the sale where the pool has not been satisfied with the evidence provided, the administrator will have to explain to the creditors why he felt the sale was appropriate.
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