Pre-pack administration is a procedure where the sale of a company’s business or assets is negotiated and agreed prior to the formal appointment of an administrator. The sale is then executed immediately upon, or shortly after, the appointment takes place.
The primary goal is to protect the business’s going-concern value. In a standard administration, the public nature of the process can lead to the loss of key contracts, supplier withdrawal, and customer attrition. By completing the sale at the point of entry into administration, the business preserves its brand, intellectual property, and operational momentum.
Because a pre-pack sale occurs before creditors are formally consulted, the process is subject to strict transparency rules under Statement of Insolvency Practice 16 (SIP 16). The purpose of SIP 16 is to ensure that creditors are given sufficient information to understand why a pre-packaged sale was undertaken rather than an alternative insolvency route.
The administrator is required to issue a detailed SIP 16 statement to all creditors within seven days of the transaction. This document must satisfy a reasonable third party that the administrator acted in the best interests of the creditors. Key components include:
When a business is sold to a connected party (such as existing directors, shareholders, or their associates), additional legal safeguards apply under The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021. These regulations apply to any substantial disposal made within the first eight weeks of administration.
Employee rights in a pre-pack are governed by the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). As administration is legally viewed as a business rescue procedure, the following protections apply:
Following the sale, the proceeds are distributed by the administrator according to a strict legal order of priority established by the Insolvency Act 1986. Since the return of Crown Preference in December 2020, HMRC occupies a significantly higher position than in previous years.
| Priority Rank | Creditor Group | Description |
|---|---|---|
| 1 | Fixed Charge Holders | Lenders with security over specific, identifiable assets like land or heavy machinery. |
| 2 | Expenses of the Administration | Includes the fees of the administrator, legal advisors, and RICS valuers. |
| 3 | Ordinary Preferential Creditors | Claims from employees for arrears of wages (capped at £800 per person) and accrued holiday pay. |
| 4 | Secondary Preferential Creditors | HMRC for specific taxes collected by the business: VAT, PAYE Income Tax, and Employee NICs. |
| 5 | Floating Charge Holders | Lenders with security over changing assets (stock, cash). Payout is subject to the Prescribed Part. |
| 6 | Unsecured Creditors | Trade suppliers and landlords. They share any remaining funds and the ring-fenced Prescribed Part (capped at £800k). |
Many businesses are still affected by the volatile economic environment and operational costs from recent years. A pre-pack is typically suitable if:
A licensed insolvency practitioner (IP) reviews all options, including CVA, trade sale, and liquidation. Under SIP 16, the IP must provide a written rationale proving the pre-pack offers the best possible return for creditors.
Independent RICS-qualified surveyors must value the assets, goodwill, and intellectual property. To ensure transparency, the IP must conduct a marketing exercise to verify that the best market price is being achieved.
If the sale is to existing directors or shareholders, the 2021 Regulations mandate an independent evaluation. To maintain the speed of the sale, this evaluator is typically chosen by the directors and must complete their report within 48 hours for a fixed fee.
The purchaser must have robust funding in place. In 2026, lenders look closely at Newco viability given the current economic climate. Funding often involves a mix of director investment and specialist asset-based lending.
Upon appointment, the administrator signs the Sale and Purchase Agreement. Within seven days, a SIP 16 statement is sent to all creditors detailing the transaction, valuations, and marketing efforts to ensure full transparency.
If a pre-pack is not suitable, other insolvency routes include:
A pre-pack administration involves significant legal and regulatory compliance. Directors should budget for a minimum of £25k to cover IP fees, legal costs, and independent valuations.
If you require further advice on the suitability and process of a pre-pack administration for your business, you are encouraged to contact our experts for a detailed consultation.
If you require a confidential, expert assessment of your business’s eligibility for a pre-pack, please contact us today for a detailed consultation.
Written ByKeith Steven
Turnaround Director
Keith is the Turnaround Director of RMT Accountants & Business Advisors. Prior to being acquired by RMT his company KSA Group has undertaken more than 300 CVA led rescues. Read our case studies to see how.
