Pre-pack administration, explained
A pre-pack is a sale of the business negotiated before the administrator is appointed and completed the moment they are. It preserves going-concern value and jobs — and, done wrong, it lets a company shed its creditors and carry on trading. This is the plain-English guide, with the 2021 rule change built in.
- 1. Directors instruct insolvency practitioner
- 2. Business marketed & valued (SIP 16)
- 3. Sale negotiated, docs prepared
- 4. Administrator appointed
- 5. Sale completes minutes later
Why pre-packs exist
Once a struggling company enters administration publicly, customers stop paying, suppliers put it on stop, key staff walk out, and value evaporates within days. A pre-pack solves this by shifting the sale before the appointment: the business is quietly marketed, priced and sold under the direction of a licensed insolvency practitioner, and completion happens seconds after the practitioner formally accepts appointment. The buyer takes the trading business intact; the debts stay in the old company and are dealt with by the administrator using the sale proceeds.
The mechanics
The IP is expected to test the market — trade press, sector-specific brokers, direct approaches to plausible acquirers. SIP 16 requires disclosure of the marketing done. Two independent valuations (going concern and forced sale) are standard.
Documents are pre-drafted. The administrator signs the appointment paperwork, the moratorium kicks in, and — usually within minutes — signs the sale agreement. The buyer takes possession of premises, kit and staff the same day.
If the buyer is connected to the seller (a director, a relative, a business partner), the sale in the first eight weeks needs either an independent Evaluator's report finding the terms reasonable, or express creditor approval. The Evaluator is paid by the buyer and reports in writing.
Because the buyer is acquiring a going concern, TUPE applies: employees transfer on their existing terms. Consultation timelines are compressed by the nature of a pre-pack — a common area of subsequent tribunal claim.
If you're the buyer
Pre-packs are one of the fastest ways to acquire a UK business, but the diligence window is compressed to days and the seller cannot give normal warranties — the administrator sells with limited or no warranty and the price reflects that. Expect to pay for two independent valuations, an Evaluator report if you are connected, and property/lease consents that must be lined up in advance.
Practically: get a solicitor with pre-pack experience, agree the deal perimeter in writing early, and understand which contracts are novated on day one and which require customer consent. See SIP 16 statement explained for what your published deal disclosure will contain.
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Browse live administrationsFrequently asked questions
What is a pre-pack administration in simple terms?
A pre-pack is a sale of the company's business and assets that is negotiated before the administrator is appointed and completed immediately (usually the same day) after appointment. The buyer often runs the same business under a new company from day one — with the old company's debts left behind.
Is a pre-pack legal?
Yes. Pre-packs are a recognised, court-tested tool under Schedule B1 of the Insolvency Act 1986. They are regulated by SIP 16 (a professional standard for insolvency practitioners) and, where the buyer is connected to the seller, by the Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021.
Why are pre-packs controversial?
Because the sale is negotiated in private and completed before creditors know it is happening. Directors can end up owning the business again through a new company while unpaid creditors are left with the old shell. The 2021 regulations addressed this by requiring an independent Evaluator's report on any connected-party sale in the first eight weeks.
Who is the 'connected party' Evaluator?
An independent professional appointed by the connected buyer (not by the administrator) to review the proposed sale and produce a written report on whether the terms are reasonable. The administrator cannot complete a connected-party pre-pack in the first eight weeks without either the Evaluator's report or creditor approval.
What is SIP 16?
Statement of Insolvency Practice 16 — the professional standard that requires the administrator to disclose, in a formal statement to creditors, why a pre-pack was chosen, what marketing was done, how the price was set, and (for connected-party sales) the Evaluator's conclusion. See our SIP 16 statement explained.
Do employees transfer under TUPE?
Yes. In almost all pre-packs the buyer inherits the employees under the Transfer of Undertakings (Protection of Employment) Regulations 2006, along with all accrued rights.
Are unsecured creditors ever paid in a pre-pack?
Sometimes. The prescribed part is set aside for unsecured creditors from floating-charge realisations. The purchase price paid by the buyer flows into the administration estate and is distributed via the statutory waterfall, so unsecured creditors can receive a dividend — usually small.
How do I know if a pre-pack was fair?
Read the SIP 16 statement. It must explain marketing efforts, valuations obtained, connected-party status, and (from 2021) contain the Evaluator's opinion. Weak marketing, single valuation and connected buyer with no Evaluator report are red flags.