Government clarifies rules on Pre-packs

New Government guidelines have clarified what is legally permitted for pre-pack sales.

A new Statement of Insolvency Practice 16 was released on January 1st aiming to increase the transparency of pre-pack deals. Insolvency practitioners are now required to provide creditors and unsecured creditors with more information when undergoing a pre-pack sale. Information provided should include details of the terms of the sale, business valuations obtained, and any other options the administrator may have considered.

A report from the Department for Business, Enterprise & Regulatory Reform, published on May 6th, stated that sound reasoning for a pre-pack administration should be communicated clearly, and questionable reasoning should be brought to light.

The new guidance was reiterated in the ruling on a case involving a pre-pack deal by a High Court judge.

Cigarette vending machine supplier, Kayley Vending Limited, applied for an administration order after being unable to make payments on debts to HM Revenue & Customs.  

The judge outlined the main benefits and risks of pre-pack administration sales, and said that it may be the best option, in some cases, when implemented correctly.


December 2009 update: The Office of Fair Trading (OFT) have announced that in view of continued complaints about some aspects of the pre-pack administration process, it will be launching a 'market study' into corporate insolvency. The aim is to ensure that the insolvency process is working efficiently and fairly.