A prepack liquidation is an insolvency procedure that allows the directors of a company in financial distress to purchase its assets and business before appointing administrators. It’s a powerful and legal solution to a winding up petition and the company can continue trading under a new entity (‘newco’).

The process involves obtaining an independent valuation of the insolvent company’s assets and producing a Statement of Affairs. This is sent to the company’s outstanding creditors, with a proposal detailing the expected outcome of a sale. This is usually followed by a meeting with the floating charge holders (banks and lenders with security) to establish their consent before proceeding.

Unveiling the Process of Prepack Liquidation

The IPs then discreetly market the business and assets to a range of potential buyers. This step is important to preserve value and ensure creditors receive an adequate return. However, it can lead to a lack of transparency as the process is kept private and negotiations take place without the knowledge of customers and suppliers. This can cause frustration for creditors who feel disenfranchised and concerned that they aren’t being treated fairly.

Creditors are also often unaware that the pre-pack process has taken place until the sale is complete, and this can lead to concerns over whether the best deal was achieved for them. The lack of transparency can cause a lack of confidence in the pre-pack process, and it’s a reason why new laws have been introduced to require independent scrutiny of pre-pack sales where connected parties are involved.