Pre-Pack Administration: What Is It?

To paraphrase Andy Williams, winter is the most wonderful time of the year. The air is getting colder, Christmas is just around the corner and the retail industry is a hive of sales everywhere you turn.

However, Black Fridays, Cyber Mondays and Boxing Day sales can come with a price for many businesses. The new trend of slashing prices in the winter months can lead to many problems both in the short-term and long-term for businesses, especially a reduction in profits.

One topic that has been in the news in recent weeks is that of pre-pack administrations. This is partially down to the situation faced by popular baby and retail retailer Mamas & Papas, who are closing 6 out of their 32 stores.

So, what is a pre-pack administration and when can the process be utilised?

What?

Administration, in short, is the process by which a company is placed under the control of an administrator, to enable them to achieve specific objectives to assist the company.

In a pre-pack administration a company is put into administration and its business and/or assets are immediately sold by the administrator under a sale that was arranged before the administrator was appointed.

As business operations will continue, the value of assets and ‘work in progress’ are preserved, meaning revenue is protected.

How can it help?

As the sale occurs shortly after the administrator’s appointment, the process is smoother and quicker than if the business was to enter formal administration. This not only saves time and stress but also cost.

The speed of a pre-pack administration will help protect goodwill and reputation as suppliers, customers and employees are more likely to retain confidence in a business if it continues to trade and is not caught up in a long insolvency process.

Most importantly, a pre-pack administration can not only help save the business, but also the jobs of its employees. As seen from the Mamas & Papas pre-pack administration, more jobs can be saved by following this process when compared to the formal administration process due to the business continuing to trade post-sale.

If your business is in difficulty and creditors have threatened liquidation, we would advise you to act quickly to obtain advice on the possibility of entering into a pre-pack administration.

If you have any queries or want more information, please contact Geldards’ Dispute Resolution Team.