During a pre pack liquidation the business and its assets are sold at market value to a new company (often referred to as a phoenix company). The old company enters administration whilst the sale completes. The newco then begins trading and is debt free – any historical debts of the old company cease to exist at liquidation.

The sale of the business and its assets is governed by insolvency regulation. As a result, it is important to ensure that the right process is followed in order to ensure compliance. This is especially true when it comes to sales to connected parties. As such, there are two processes that have been introduced to improve transparency in these circumstances; the Pre-Pack Pool and Evaluator’s Report.

Understanding Pre Pack Liquidation: What You Need to Know

A reputable insolvency practitioner can help to navigate the complexities involved in the process. They will work with the directors of the insolvent company to find a suitable buyer and arrange for valuations. They will also be required to provide substantial information to creditors to demonstrate that the pre-pack option was the best available in the circumstances and for the statutory purpose of achieving a better return for them.

A key benefit of a pre-pack liquidation is that it can be completed quickly and with little disruption to the business. This can ensure that employee contracts are maintained, the business reputation is protected and suppliers and creditors are more likely to be paid under new ownership. Furthermore, it can help to limit financial loss for creditors as the purchase price is generally higher than the estimated liquidation value of the old company.