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Lifting the lid on “Pre-Pack” sales

One of the most scrutinised areas of corporate restructuring is that of “pre-pack” sales of businesses.

The process behind a “pre-pack” sale involves an insolvency practitioner carrying out an accelerated sale and marketing process on a business. Typically, industry competitors, high net worth individuals, private equity funds, corporate finance houses and other intermediaries would be targeted and any interested party would be required to submit their best and final offers by a specific date. Once the sale is agreed to the highest bidder, the business will enter the insolvency process and the insolvency practitioner will immediately complete the sale to the purchaser. Previous high profile examples of sales by “pre-pack” include: Agent Provocateur, Dreams, JJB Sports, Bernard Matthews, Blacks Leisure, DTZ and La Senza.

If circumstances allow, a sale by “pre-pack” can maximise the return for all stakeholders involved. The business can be sold without the negative taint of having been traded through Administration for a prolonged period of time, where the risk of losing key customers or staff is significantly higher.

Also, a “Pre-pack” sale is a useful tool in scenarios where there is a lack of available funds to keep the business trading through Administration. Without the ability to sell via “pre-pack”, ceasing to trade the business may be the only alternative. This can result in all staff being made redundant and assets being sold by public auction.

Certain stakeholders, such as unsecured creditors or employees, have questioned the transparency of “pre-pack” sales and can become especially concerned when a sale takes place to a former director(s). However, the fundamental objective of a “pre-pack” sale is maintaining value in the business. The ability to maintain value via this method of sale should result in returns to all creditors being maximised and employment maintained.

On occasions the highest bidder may be a former director(s). This is unavoidable by nature of the sales process. The purchaser must be the person who will deliver the best returns to all stakeholders. Regardless of a sale by “pre-pack” or not, the appointed insolvency practitioner must still investigate the conduct of all directors. Stakeholders should take comfort from this as it ensures any unfit conduct will receive the appropriate investigation, and, if required, disqualification proceedings.

To increase transparency and stakeholder confidence in the “pre-pack” process, professional bodies and the government have worked in tandem to amend standards and legislation. Thus aiming to provide stakeholders with greater detail of the discussions taken and justifications of why this sales method was chosen. Also to further increase transparency, an independent body of experienced business individuals has been created called the “pre-pack pool”. They review the whole process and provide an independent opinion on the proposed purchase of a business before it occurs.

Although it has had its critics, the “pre-pack” sales method is a powerful tool to preserve value and keep businesses trading which should lead to greater returns for all stakeholders involved.