A pre pack administration is when the sale of a company's business and assets is negotiated and agreed before an administrator is formally appointed, then completed immediately afterwards — often within hours. It lets trading continue with barely a pause, protecting jobs, contracts and value that a slower sale process would likely lose.
For a director watching a company run out of cash, the idea of a deal being struck "before" insolvency can sound irregular. It isn't. Pre-pack sales are a recognised part of UK insolvency practice, carried out under the Schedule B1 administration regime in the Insolvency Act 1986, with specific rules to keep the process fair to creditors.
This article explains how a pre-pack works, why companies use one, and the safeguards that exist — including the independent evaluator and the extra scrutiny applied when a sale is to the company's own directors.
What a pre-pack administration is
In an ordinary administration, an insolvency practitioner is appointed first and then markets the business, which can take weeks. In a pre pack administration, the marketing and negotiation happen beforehand, usually managed by an insolvency practitioner acting as an adviser, and the sale contract is ready to sign the moment the administrator's appointment takes effect.
The buyer might be a third party, an existing connected person such as a director, or a new company set up to acquire the trade — often called a "newco". Whoever the buyer is, the underlying company remains in administration and is usually wound up afterwards, while the business itself carries on inside the new structure.
How the sale is arranged before appointment
The groundwork for a pre-pack typically follows a set pattern:
- Early advice. Directors, often once cash flow difficulties are clear, take advice from a licensed insolvency practitioner about the company's options.
- Valuation and marketing. The business and its assets are valued, and — where time and confidentiality allow — marketed to prospective buyers.
- Negotiating terms. Price, assets included, employee transfers and completion mechanics are agreed in draft.
- Appointment and completion. An administrator is formally appointed (usually by the directors or a qualifying floating charge holder), and the pre-agreed sale completes immediately, or within a very short window.
Because the deal is essentially finished before appointment, trading can continue seamlessly — staff turn up, customers are served, and supplier relationships are less disrupted than they would be during a lengthy, publicly marketed sale process.
Why businesses use pre-packs
Speed is the main driver. A business that stops trading, even briefly, can lose contracts, staff, goodwill and licences almost overnight. A pre-pack sale process avoids the damaging gap between insolvency and a completed sale, which is often where the most value is destroyed.
Common reasons directors and insolvency practitioners consider a pre-pack include:
- Preserving jobs by transferring employees to the buyer, often under TUPE protection.
- Keeping key customer or supplier contracts alive, which might otherwise be terminated on insolvency.
- Achieving a better return for creditors than a slower administration or liquidation, where trading value would otherwise evaporate.
- Avoiding the reputational and operational damage of a public "for sale" process while the company is visibly struggling.
If a company is considering its wider options, it's worth reading our overview of company insolvency options and which route is right, since a pre-pack is only one of several routes into administration.
The rules and safeguards, including the evaluator
Because pre-packs happen so quickly, with limited open marketing, they attract more scrutiny than ordinary administration sales. Several safeguards apply.
Administrators must follow Statement of Insolvency Practice 16 (SIP 16), which requires them to disclose detailed information to creditors shortly after the sale, including how the price was set, who the buyer is, and why a pre-pack was chosen over other options. This disclosure lets creditors assess whether the deal was reasonable, even though they had no say beforehand.
Where the buyer is a connected person, the Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 add a further layer: the sale generally cannot go ahead within the first eight weeks of administration unless the administrator has either obtained creditor approval or independent scrutiny from an evaluator through the Pre-Pack Pool, or can otherwise justify the transaction.
These rules exist to answer the "is it legal" question directors often ask — a pre-pack administration is entirely lawful, provided the administrator follows the reporting and, where relevant, connected-person requirements.
Selling to connected parties and directors
A common and legitimate use of a pre-pack is a sale to the existing directors or shareholders, sometimes described as "buying the business back". This is not automatically improper — directors often understand the business best and can keep it running with least disruption.
However, because directors are on both sides of the transaction in effect, extra checks apply:
- The independent evaluator — through the voluntary Pre-Pack Pool — can review the deal and issue an opinion on whether it appears reasonable, which is disclosed to creditors.
- The administrator must independently satisfy themselves the price and terms represent the best achievable outcome, not simply what the directors propose.
- Any pre-existing debts owed by the old company to directors, or personal guarantees, do not simply disappear — they remain matters for the insolvency process.
Directors thinking about this route should get independent advice early, since the connected-person rules and reputational considerations are more involved than a straightforward third-party sale. Our guide to pre-pack administration pros and cons sets out the trade-offs in more detail.
What happens to creditors and employees
Unsecured creditors of the old company do not automatically get paid by the buyer — they remain creditors of the company in administration, and are usually paid, if at all, from whatever funds the administrator can distribute once secured and preferential claims are met. This is often little or nothing, which is why SIP 16 disclosure matters so much to them.
Employees are generally in a stronger position. Where the business transfers as a going concern, the Transfer of Undertakings (Protection of Employment) Regulations — usually referred to as TUPE — typically apply, meaning employment transfers to the buyer on existing terms. This is one of the main reasons pre-packs are favoured where saving jobs is a priority.
HMRC, as is often the case in insolvency, is frequently one of the larger unsecured creditors for unpaid VAT, PAYE or corporation tax, and receives the SIP 16 report along with other creditors.
How it differs from ordinary administration
Both processes use the same legal framework, but the timing and marketing differ significantly:
- Ordinary administration: the administrator is appointed first, then markets and sells the business over weeks or months, generally with more open competition for buyers.
- Pre-pack administration: marketing and negotiation happen before appointment, and the sale completes almost immediately, minimising trading disruption but with less scope for open-market competition.
If you're not yet sure administration is the right route at all, our guide what is company administration explains the wider process, including the moratorium — a legal pause on most creditor action — that protects the company while a solution is worked out.
Frequently asked questions
Is a pre-pack administration legal?
Yes. Pre-pack sales are a recognised, lawful part of the UK administration regime under the Insolvency Act 1986, subject to SIP 16 disclosure and, for connected-person sales, the 2021 connected persons regulations.
Can I buy my own company's business back through a pre-pack?
It's possible, and a common scenario, but connected-person sales face extra scrutiny, including possible referral to the independent Pre-Pack Pool evaluator, and the administrator must be satisfied the terms are justified.
Do creditors get a say before a pre-pack sale completes?
Generally no — the sale is agreed before appointment and completes quickly, so creditors are informed afterwards through the SIP 16 report rather than consulted beforehand, except where connected-person approval routes apply.
What happens to employees in a pre-pack sale?
Where the business transfers as a going concern, employees typically transfer to the buyer under TUPE, keeping their existing terms and continuity of employment.
How is a pre-pack different from a normal sale in administration?
The key difference is timing: a pre-pack is negotiated before the administrator's appointment and completes almost immediately, while an ordinary administration sale is marketed and negotiated after appointment, over a longer period.
This article is general information, not legal, financial or insolvency advice, and does not cover every circumstance.
If you're considering a pre-pack or want to understand your options as a director, Harbourfirst can introduce you to a regulated insolvency specialist — start an enquiry.