Pre-pack Administration Process: Everything You Need To Know

Pre-pack Administration Process: Everything You Need To Know

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Pre-pack administration can provide a lifeline for struggling businesses. However, it is a complex insolvency process governed by strict legal requirements.

In this practical guide, we have outlined everything you need to know about pre-pack administration, from what it is, to how it works, director responsibilities, and so much more.

What is a pre-pack administration?

A pre-pack administration is a formal insolvency process where a company arranges the sale of its business and assets to a buyer before formally entering administration. Once the administrator is appointed, the sale is completed almost immediately, allowing the company to continue operating under new ownership without significant disruption.

The number of pre-pack administrations has increased significantly, with a 171% rise from 201 in 2021 to 545 in 2023.

Pre-pack administration laws

The pre-pack process is governed by the Insolvency Act 1986 and the Administration Regulations 2021. These Acts aim to ensure transparency and fairness – particularly in cases where the buyer is connected to the company, such as existing directors or shareholders.

Who can buy a business through the pre-pack administration process?

A range of buyers can purchase a company through a pre-pack administration. The key types of buyers include:

  • Existing directors and shareholders: Often, directors or shareholders of the insolvent company set up a new company to acquire the assets and continue trading.
  • Competitors: Businesses operating in the same industry may see an opportunity to expand by purchasing the struggling company’s assets at a lower cost.
  • Investors: Private investors or venture capital firms may be interested in acquiring distressed assets at a discounted price with the potential for turnaround.
  • Third-Party buyers: In some cases, independent buyers unconnected to the original business may purchase the company’s assets as part of a strategic acquisition.

While pre-pack sales are often arranged confidentially, administrators may still test the market to find potential buyers without alerting customers or suppliers to financial distress. Regardless of who the buyer is, the sale must be conducted transparently, and if a connected party is involved, a review by the Pre-Pack Pool is often recommended to ensure fairness.

We’ll explain more about the Pre-Pack Pool later in this guide. 


Company insolvency law explained: What is a ‘Newco’?

A ‘Newco’ (short for ‘new company’) is a newly formed business entity, often created by an insolvent company’s existing directors or shareholders to purchase its assets through a pre-pack administration.

Comparing pre-pack administration and traditional administration

Unlike pre-pack administration, standard administration involves the administrator actively marketing the business for sale and exploring alternative solutions if a sale cannot be achieved.
 

The table below highlights the key differences.

Feature Pre-pack administration  Traditional administration 
Timing of sale Sale is arranged before the company enters administration. Sale occurs after the administrator is appointed and explores options.
Speed of process The sale is completed almost immediately after administration begins. However, negotiating the sale can take several weeks, or even longer. The sale process can take weeks or months.
Creditor involvement  Creditors are generally not consulted before the sale. Creditors are consulted, and their approval may be required for major decisions.
Business continuity  Business operations continue seamlessly under new ownership. Business operations may be disrupted while the administrator seeks a buyer.
Value preservation  Protects goodwill and prevents loss of asset value. Business value may deteriorate during the administration period.
Transparency  It can be perceived as less transparent since the details of the sale are pre-arranged. A more open process where creditors and stakeholders are kept informed.
Cost  Generally lower as the administration period is short. Higher costs due to a longer administration process.
Regulatory oversight  May be subject to scrutiny from the Insolvency Service and Pre-Pack Pool – especially if a connected party is involved, concerns are raised about mismanagement or improper practices, or creditors feel the process was unfair. The administrator follows a structured process, which may include consulting a group of creditors (a creditor committee). This committee helps oversee the administration, ensures creditors’ interests are considered, and may have a say in key decisions. If misconduct is suspected, investigations may follow.

What happens to company assets during a pre-pack administration?

During a pre-pack administration, the company’s assets are sold as part of the pre-arranged deal. This typically involves: 
  • An independent valuation: The company’s assets must be independently assessed to ensure they are sold at a fair market value.
  • Sale of key assets: Critical business assets such as intellectual property, stock, and equipment are typically included in the pre-pack sale to allow the business to continue operating. The transaction must comply with insolvency regulations.
  • Retention of other assets: Assets not purchased remain with the old company. These form part of the eventual liquidation of the insolvent company.
During pre-pack administration, the buyer acquires the assets but not the liabilities of the old company, meaning outstanding debts remain with the insolvent company.

Advantages of pre-pack administration

Pre-pack administration offers several benefits for struggling businesses. It is particularly useful for companies facing financial difficulties but still operating a viable business.

 

1. Speed of sale

As the sale is pre-arranged before administration begins, the process is completed quickly, reducing uncertainty and minimising operational downtime.

 

2. Continuity of trade

The quick transition means the business can continue operating, often under the same branding, without the usual disruptions caused by administration. This helps maintain customer relationships and brand reputation.

 

3. Preservation of value

By securing a sale before entering administration, the business’s goodwill and asset values are protected, preventing a significant loss of value. This ensures the company retains as much financial worth as possible.

 

4. Protection of jobs

Employees are typically transferred to the new company under the TUPE regulations, safeguarding jobs that might otherwise be lost. 

 

Company insolvency law explained: What is TUPE?

 

TUPE stands for the Transfer of Undertakings (Protection of Employment) Regulations 2006. It is a legal framework designed to protect employees when a business or part of a business is transferred to a new owner. Under TUPE, employees of the insolvent company are automatically transferred to the new company on the same terms and conditions, safeguarding their rights and continuity of employment.

5. Reduced costs

As the administration period is shorter, overall costs such as legal and administrative fees tend to be lower than those associated with traditional administration. This makes it a more cost-effective insolvency solution.

 

6. Better returns for secured creditors

By ensuring a smooth transition, pre-pack administration can often result in a better outcome for certain creditors compared to liquidation. This is because the quick sale ensures they recover funds faster.

 

Real-life example: Pizza Hut pre-pack administration (2025)

 

In January 2025, fast food chain Pizza Hut was bought in a pre-pack deal. The business had been facing financial difficulties due to challenging market conditions. More than 3,000 jobs were preserved, and 139 restaurants were rescued as a result of the deal with an investment firm.

Disadvantages of pre-pack administration

While pre-pack administration has its advantages, it is not without challenges and potential drawbacks.

  1. Potential for creditor dissatisfaction

    The debts of the old company, including unpaid invoices, are effectively written off as the company is liquidated and the new company starts fresh. This can leave some creditors feeling unfairly treated, particularly if they suffer significant financial losses.

  2. Risk of reputational damage

    The sale of a failing company may lead to negative publicity and potential distrust from customers and suppliers. Some creditors may refuse to deal with the new company due to the perceived risk.

  3. Feeling of unfairness

    The process often involves selling the business and assets to its current directors, who form a new company to trade from. This can leave an unpleasant perception among creditors and the wider business community – especially where debts go unpaid.

  4. Regulatory scrutiny

    The Pre-Pack Pool (an independent body that reviews connected-party transactions) ensures pre-pack deals are fair, but the process may still be scrutinised and challenged by the Insolvency Service.

  5. Potential impact on directors

    Once the pre-pack sale is complete, the administrator is required to submit a report. Regulatory bodies may review the conduct of the directors leading up to the insolvency, which could have consequences if any misconduct is identified.

  6. Potential redundancies

    While employee rights are protected, some redundancies may still occur if the new company does not require the same workforce size or if cost-cutting measures are implemented to ensure business viability.

How does pre-pack administration work?

The pre-pack administration process is structured to ensure a smooth transition from financial distress to new ownership. It involves several key steps that must be followed carefully to protect the interests of creditors, employees, and other stakeholders.

The pre-pack administration process

Below is an overview of how the pre-pack administration process works.

  • Engagement of an IP: The company contacts a licensed insolvency practitioner to discuss the situation. 
  • Business valuation: If it is agreed that a pre-pack is the best course of action, the insolvency practitioner will carry out an independent valuation of the company’s assets to determine a fair market price for the sale.
  • Identification of potential buyers: The company may seek interest from external buyers or, in many cases, directors or shareholders may set up a new company (a ‘newco’) to acquire the assets.
  • Agreement of sale terms: The insolvency practitioner negotiates and finalises the sale terms before the administration is formally initiated.
  • Administration appointment: The company formally enters administration, with the appointed administrator taking control of the business. 
  • Completion of sale: The pre-arranged sale is executed, allowing the business to continue operating under the new ownership.
  • Creditors’ meeting held: After the sale, the administrator must hold a creditors’ meeting to explain why the pre-pack administration was undertaken. This is a legal requirement.
  • Liquidation of the old company: In most cases, the old company is liquidated following the formation of the new company.
  • Distribution to creditors: The proceeds from the sale are distributed to creditors based on the statutory hierarchy of claims.

Creditor rights in a pre-pack administration

While any administration is designed to maximise returns for creditors, the nature of the pre-pack process can lead to concerns over transparency and fairness. Nevertheless, a pre-pack administration is often better for secured creditors.

 

Priority of payment

Once the insolvent company is liquidated, creditors are paid in a statutory order, with secured creditors being paid first, followed by preferential creditors, and finally unsecured creditors.

 

Here’s how it works: 

  • Insolvency fees: The costs of the administration are paid first. This includes the administrator’s fees, legal costs, and any expenses incurred in managing the insolvency process.
  • Secured creditors with a fixed charge: These creditors have security over specific assets and are paid next. E.g. a bank with a mortgage over company property.
  • Preferential creditors: These creditors have priority over floating charge and unsecured creditors. Types of payments include employees unpaid wages (subject to a statutory cap) and certain pension contributions.
  • Secured creditors with a floating charge: These creditors have security over general company assets (e.g. stock, cash, work-in-progress, etc.). A portion of the recoveries is set aside for unsecured creditors.
  • Unsecured creditors: These creditors have no security over company assets and are last in line before shareholders. In many cases, unsecured creditors will receive little or nothing. 
  • Shareholders: Shareholders are at the bottom of the payment hierarchy. They only receive a distribution if all creditor claims have been fully settled, which is rare in insolvency.

Limited involvement in negotiations

Unlike in a traditional administration, creditors are typically not consulted before the sale is completed, as the deal is arranged confidentially in advance. However, if creditors believe the pre-pack administration was not handled properly or in their best interest, they may raise concerns with the administrator and regulatory bodies.

Pre-pack administration shareholders’ rights

Shareholders in a company undergoing pre-pack administration have limited rights, as the process prioritises creditors’ interests. 
  • Loss of control: Once the company enters administration, shareholders lose control, and the administrator makes all the key decisions.
  • Potential for buyout opportunities: Shareholders may set up a new company and purchase the assets of the old one, but this must be done transparently and at a fair market value.
  • No automatic payout: Shareholders typically rank below creditors in the distribution of funds, meaning they are unlikely to receive any financial return.

 

Real-life example: Cheesegeek pre-pack administration (2025)

 

In March 2025, artisan online cheesemonger Cheesegeek – the first-ever investment made by Steven Bartlett in Dragons’ Den – was rescued in a pre-pack deal. While this was good news for the business, the deal meant Bartlett would not see a return on his investment.

Director responsibilities during pre-pack administration

Directors considering a pre-pack administration must be mindful of the following legal obligations:
  • Acting in creditors’ best interests: Directors must ensure that the pre-pack sale offers the best possible return to creditors and does not unfairly advantage any stakeholders.
  • Avoiding wrongful trading: Directors should not continue trading if they know the company is insolvent as this could lead to personal liability. If misconduct or wrongful trading is suspected, directors could face disqualification for up to 15 years.
  • Compliance with SIP 16: Insolvency practitioners must disclose the rationale behind the sale, and directors should assist with full transparency.
  • Ensuring fair market value: Directors should ensure the sale of assets is conducted at fair market value through an independent valuation to avoid allegations of asset undervaluation or improper benefit to connected parties.

 

Company insolvency law explained: What is SIP 16?

 

Statement of Insolvency Practice 16 (SIP 16) is a professional standard issued to insolvency practitioners (IPs) in the UK. It provides guidance on how they must handle pre-pack administrations, ensuring transparency and fairness.

Why are pre-packs sometimes controversial?

Pre-pack administrations can be controversial, especially when the buyers include directors or shareholders of the insolvent company and creditors experience losses. The number of sales to a connected party (e.g. director or shareholder) has more than tripled over recent years, increasing from 106 in 2021 to 329 in 2023.

Real-life example: Michelin-starred chef Tom Aikens (2008)

One notable example is the case of Michelin-starred chef Tom Aikens, whose business went into administration in October 2008, leaving 160 suppliers – mostly small family firms – almost £1 million out of pocket.

Through a pre-pack arrangement, Aikens’s business was immediately sold back to him and a couple of venture capitalists, allowing his restaurants to continue trading without closing, while effectively eliminating debt. 

 

Company insolvency law explained: What is a ‘phoenix company’?


A ‘phoenix company’ is a new business that emerges from the insolvency of a previous company, often involving the same directors, assets, and operations. This allows the business to continue trading under a fresh legal entity while leaving behind liabilities from the old company.

Recent regulatory changes 

Regulatory scrutiny over pre-pack administrations has increased in recent years to address concerns over transparency and creditor protection.

For example, the Administration (Restrictions on Disposal etc.) Regulations 2021 introduced new safeguards, requiring either creditor approval or an independent evaluator’s opinion before a business is sold to a connected party within eight weeks of administration.

What is the Pre-Pack Pool?

The Pre-Pack Pool is an independent body established to review pre-pack sales where the buyer is connected to the insolvent company, such as its directors, shareholders, or a related business.

 

While referring a transaction to the Pre-Pack Pool is not mandatory, it is often encouraged to assure creditors and regulators the sale has been conducted fairly and transparently.

 

Pre-Pack Pool assessment process

The buyer submits a request for a review, and an independent panel member assesses whether the deal is reasonable. The panel then provides one of three opinions:

  • The deal is reasonable: This means the panel considers the proposed sale represents fair value and is in the best interests of creditors and stakeholders.
  • The deal is not unreasonable: This is a more neutral opinion. It suggests that, while the panel cannot fully endorse the deal as “reasonable,” it does not see clear reasons to reject it. 
  • Insufficient evidence to assess fairness: In such cases, the applicant (typically the connected party) may need to provide further justification or supporting evidence.

Regardless of the outcome, the opinion is non-binding, so the sale can still proceed.

Legal requirements of a pre-pack administration

A pre-pack administration must comply with strict legal requirements to ensure transparency, fairness, and the best outcome for creditors. The key legal requirements include:
  • A licensed insolvency practitioner (IP) must be appointed to oversee the process and act in the best interests of creditors.
  • The company’s assets must be independently valued to ensure they are sold at a fair market price.
  • The administrator must ensure that the sale provides the best possible return for creditors – compared to alternative insolvency options.
  • The administrator must provide full disclosure of the pre-pack deal, explaining why it was necessary, how it was structured, and how it ensures the best possible return for creditors.
  • If employees are transferred to the new business, the process must comply with the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) to safeguard their rights.
  • The administrator is required to submit a report on the conduct of the company’s directors prior to insolvency, which could lead to further investigation if misconduct is suspected.
Failure to adhere to these legal requirements could result in regulatory action, challenges from creditors, and reputational damage for the parties involved.

Alternatives to pre-pack administration

While pre-pack administration is a useful tool for struggling businesses, it is not the only option. Depending on the company’s financial position and objectives, the following alternatives may be considered:
  • Company Voluntary Arrangement (CVA):  A legally binding agreement that allows a company to negotiate with creditors to restructure its debts while continuing to trade.
  • Creditors’ Voluntary Liquidation (CVL): If the business is no longer viable, directors may opt for voluntary liquidation, where assets are sold to repay creditors before the company is dissolved.
  • Administration without a pre-pack sale: In a standard administration, the administrator takes control of the company and explores different strategies, including marketing the business to potential buyers over a longer period.
  • Informal negotiations with creditors: Some businesses avoid formal insolvency by negotiating directly with creditors to extend repayment terms or reduce outstanding debts.
  • Refinancing or restructuring: Directors may seek new investment, loans, or restructuring strategies to improve cash flow and avoid insolvency altogether.
Choosing the right option depends on the specific circumstances of the business, and seeking professional legal and financial advice is crucial to making an informed decision.

How much does a pre-pack administration cost?

The cost of a pre-pack administration varies depending on the complexity of the case, the size of the business, and the professional fees of the insolvency practitioner.

Costs typically include:

  • Insolvency practitioner fees: Fees for handling the administration process and securing the pre-pack deal.
  • Legal costs: Insolvency solicitor fees for drafting agreements and ensuring compliance with insolvency laws.
  • Valuation and marketing costs: Independent valuations and potential marketing expenses if external buyers are sought.
  • Regulatory fees: If the transaction is reviewed by the Pre-Pack Pool, additional fees may apply.

A typical pre-pack administration for a small to medium-sized company can cost anywhere from £20,000 to £100,000, depending on the specifics of the case. Actual costs can vary based on complexity and professional fees.

Pre-pack administration FAQs

Navigating a pre-pack administration can be complex. Below, we answer some of the most frequently asked questions to help you understand the implications and key considerations of a pre-pack administration.

Creditors may not have prior notice of the pre-pack sale, but they receive any available funds from the sale proceeds based on the statutory order of priority. Secured creditors usually receive payment first, followed by preferential creditors, and then unsecured creditors. Some creditors may receive nothing following a pre-pack administration.

Employees are usually transferred to the new company under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

This means their existing employment contracts, rights, and obligations are preserved. However, depending on the needs of the new business, redundancies may follow.

Pre-pack administration is typically faster than traditional administration. The sale is usually completed within a few days of the company entering administration, though preparatory work may take several weeks – or even longer.

In a pre-pack administration, the sale of assets is arranged before the company enters administration.

In a traditional administration, the administrator takes control of the company and seeks buyers after appointment, which can take significantly longer and may generate substantial stress for employees and creditors.

Yes, the company’s directors decide to pursue a pre-pack administration, usually in consultation with an insolvency practitioner.

Contact our insolvency solicitors today

If you are considering a company pre-pack administration or need expert legal advice on insolvency, Summit Law is here to help. Our experienced insolvency lawyers can guide you through the process and ensure the best possible outcome for your business.

For your free consultation, please call us on 020 7467 3980 or complete our online enquiry form to discuss how we can help.