Pre pack administration

A pre pack is a sale of a company’s business or assets that is negotiated before an administrator is appointed and completed by the administrator on or shortly after appointment. Where the buyer is connected to the company, such as its directors, the Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 stop the sale in the first eight weeks unless creditors approve it or the buyer obtains an independent evaluator’s report.

What is a pre pack administration?

There is no statutory definition. Statement of Insolvency Practice 16 (SIP 16), which insolvency practitioners must follow, describes a pre packaged sale as an arrangement under which the sale of all or part of a company’s business or assets is negotiated with a purchaser before the appointment of an administrator, and the administrator completes the transaction immediately on or shortly after appointment.

The Insolvency Service’s 2020 review of pre packs explains the attraction: speed preserves the value of the business and saves jobs, while avoiding the cost of trading the business in administration. The same review found that pre packs made up around 29% of all administrations, and that around half of pre pack sales were to connected persons.

Why are connected party pre packs controversial?

Creditors usually hear about a pre pack only after the sale has completed, and in a connected sale they then see the same directors running the same business through a new company while the old company’s debts go unpaid. The 2020 review cited the 2014 Graham Review, which found that 29% of connected party pre packs failed within three years, against 16% of sales to unconnected buyers.

Voluntary reforms followed in 2015, including the Pre Pack Pool, a panel of experienced business people who could give an opinion on a connected sale. Take up was low: the review counted 36 referrals out of 163 eligible connected sales in 2016. The government concluded that a ban was not justified but that an independent opinion or creditor approval should become compulsory, which led to the 2021 Regulations.

Who counts as a connected person?

The Regulations use the definition in paragraph 60A of Schedule B1 to the Insolvency Act 1986. A connected person is:

• a director, other officer or shadow director of the company;
• a non employee associate of such a person, such as a relative or a company they control;
• a non employee associate of the company;
• a company connected with the company, meaning one whose directors, officers or shadow directors are or have been relevant persons of the other.

Associates connected only because one employs the other are excluded, so a sale to an ordinary employee is not caught. A sale to the directors’ new company plainly is. If there is doubt about whether a director has been acting in that role informally, see shadow and de facto directors.

What do the 2021 Regulations require?

The Regulations came into force on 30 April 2021 and apply to administrations starting on or after that date. Regulation 3 prohibits a “substantial disposal” unless one of two conditions is met. A substantial disposal is a disposal, hiring out or sale to one or more connected persons, within eight weeks beginning with the day the company enters administration, of what the administrator considers to be all or a substantial part of the business or assets. A series of transactions counts.

The two conditions are:

1. Creditor approval (regulation 4). The administrator includes the proposed sale in the statement of proposals under paragraph 49 of Schedule B1 and the creditors approve it. This rarely suits a true pre pack, because proposals come after appointment.
2. A qualifying report (regulations 5 to 7). The connected buyer obtains a written report from an independent evaluator and gives it to the administrator, who must consider it and be satisfied that it meets the requirements.

Sales after the eight week window, or to unconnected buyers, fall outside the Regulations, although SIP 16 still applies to every pre pack.

Who can act as the evaluator?

Under regulations 10 to 13 the evaluator must be an individual who:

• is satisfied that their knowledge and experience is sufficient to make the report, and the administrator must also be satisfied of this;
• holds professional indemnity insurance covering liability for statements in the report;
• is independent: not connected with the company, not an associate of or connected with the buyer, without a conflict of interest, and not someone who has advised the company or the buyer on insolvency, rescue or restructuring in the previous 12 months;
• is not the administrator or their associate, and is not excluded by an unspent conviction for dishonesty, an undischarged bankruptcy, a disqualification order or undertaking, or similar.

Note that it is the connected buyer, not the administrator, who obtains and pays for the report (regulation 6).

What must the evaluator’s report say?

Regulation 7 sets the content. The report must identify the evaluator, their experience and insurance (insurer, policy number, risks covered, amount and exclusions), the property being sold, the buyer and their connection, and the consideration in sterling. It must then state either that the evaluator is satisfied the consideration and the grounds for the sale are reasonable in the circumstances, or that they are not satisfied, which the Regulations call a “case not made” opinion, with the principal reasons and a summary of the evidence.

Regulation 8 deals with opinion shopping. If the evaluator knows or believes the buyer obtained an earlier report on substantially the same sale, the new report must include it or explain why it has not been obtained.

A case not made opinion does not legally block the sale. Under regulation 9, the administrator sends the report to Companies House and to creditors with the proposals, and where the opinion is negative, or an earlier report was negative, must add a statement of reasons for going ahead anyway. Creditors therefore see exactly what the evaluator said.

What does SIP 16 add?

SIP 16 (applying to appointments from 30 April 2021) requires:

• a clear distinction between the insolvency practitioner’s advisory role before appointment and the administrator’s role afterwards, with directors encouraged to take independent advice;
• making any connected buyer aware that without a qualifying report the sale cannot proceed without creditor approval;
• making connected buyers aware of the option of a viability statement explaining how the new business will survive for at least 12 months;
• marketing that follows the marketing essentials in its appendix, with any departure explained;
• independent valuations by valuers with adequate professional indemnity insurance;
• a SIP 16 statement explaining why the pre pack was chosen and what alternatives were considered, sent with the first notice to creditors and in any event within seven calendar days of the sale, and included in the proposals filed at Companies House.

Can the directors keep the company name?

If the old company later goes into insolvent liquidation, its directors from the previous 12 months are barred for five years from using its name or a similar name, as the Insolvency Service’s guidance explains. One exception applies where the business, including the name, is bought from an administrator and the required legal notices are given. Breach can lead to personal liability for the new company’s debts, prosecution and disqualification.

What does a connected pre pack look like in practice?

Illustration only. A restaurant group with unpaid rent and tax arrears is marketed for four weeks by its advisers. The best offer, £300,000, comes from a new company owned by the existing directors. Before appointment, the directors instruct an independent evaluator with relevant experience, who reports that the price and grounds are reasonable. The administrator is appointed, considers the report and completes the sale on day one. Within seven days creditors receive the SIP 16 statement, and the qualifying report goes to Companies House and creditors with the proposals. The old company is then likely to move into creditors’ voluntary liquidation.

What mistakes should directors avoid?

• Treating the insolvency practitioner as their own adviser on the purchase. SIP 16 says they advise the company, not the buyers.
• Instructing an evaluator who advised the company on restructuring in the last 12 months, which fails the independence test.
• Splitting the sale into several smaller deals. A series of transactions is still a substantial disposal.
• Assuming a favourable report ends scrutiny. The administrator’s conduct and the sale price remain open to challenge, and the administrator must still send a conduct report on the directors to the Secretary of State under section 7A of the Company Directors Disqualification Act 1986.

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Related Accountapedia entries

• How insolvency practitioners’ fees are approved
• Transactions at an undervalue
• What happens to directors in administration
• Restructuring plans under Part 26A
• What an insolvency practitioner does

Sources

• ICAEW: Sip 16 e and w prepackaged sales in administrations apr 2021
• GOV.UK: Statements of insolvency practice 16 sip 16
• GOV.UK: Pre pack sales in administration report
• legislation.gov.uk: Act 1986 c. 45, schedule B1
• legislation.gov.uk: SI 2021/427
• legislation.gov.uk: Act 1986 c. 46, section 7A
• GOV.UK: Director information hub restrictions on reusing an insolvent company

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.