A pre-pack is the process of selling the assets of a company immediately after it has entered administration. It is most likely that the previous directors or management purchase the assets of the company from the administrator and set up a new company.

 Pre-packing Case Study

The law allows the directors whereby they can buy back the assets of an insolvent company from the liquidator. Some times it is much wiser not to invest further into a company that is drowning and may be insolvent with debts that may not be repayable.  A more common & sensible solution to this problem is to set up a new company and buy the assets of the old company.

The new company is then allowed to start trading using the assets it has acquired from the liquidators and continue business as usual with what ever staff it decided to keep on with the new company. The company then has the benefit of continuing to trade without any of its former debts to burden it. The creditors under this method (pre-pack) end up with a much better return than if it were just liquidated. It also gives the creditors an opportunity to trade with the new company with view of making good some of the losses by continuing to trade or the new company can seek alternative suppliers.

I will share a case study of a pre-pack so that you can understand how it works. Company “ABC” a manufacturer of children ware clothing with factory in