What is Pre-pack Liquidation?
Is Pre-pack liquidation possible?
Can choice of Liquidator be overturned?
Pre-pack Liquidation
What is Pre-Pack Liquidation?
Pre-pack liquidation is a phrase which is often incorrectly used to describe the process of pre-pack administration.
Pre-Pack administration involves the packaging up and sale of a failing business's assets before the administrator calls a creditor's meeting. As such creditors do not have an opportunity to oppose the sale of the assets.
In reality there is no such thing as pre-pack liquidation.
If the directors of a company decide to close the business, they will appoint an insolvency practitioner to start the liquidation process. The insolvency practitioner can undertake a valuation of the company's assets and package up the business for sale. However, no transaction can take place until a section 98 creditor's meeting is held and the creditors appoint the liquidator.
If the creditors do not agree with the insolvency practitioner's proposals for the business' sale, they can refuse to appoint the practitioner as liquidator unless the plans are changed. Alternatively, they can reject the director's appointment and appoint an alternative liquidator.
Can a business ever achieve a Pre-Pack Liquidation?
If a company is to be closed, it is possible for the directors of the business to preempt the sale of the business' assets.
An independent valuation of the assets will be undertaken by the insolvency practitioner appointed by the directors. The sale and purchase agreement can be drawn up and ready to go.
The directors and or insolvency practitioner are then advised to get commitment of any major creditors for the proposed sale in advance of the section 98 meeting. If this is achieved, then it is relatively certain that the directors' choice of liquidator will be appointed and the desired sale will be transacted.
Are there any circumstances where the director's choice of liquidator will not be approved?
The directors' choice of liquidator can only be ratified by a majority of creditors at a section 98 creditors meeting.
Generally if one of the company's major creditors is a large organisation such as a bank, that organisation will prefer to use a liquidator from a pre-approved panel. In these circumstances, this creditor will normally vote against the directors' preferred liquidator in favour of their own appointment.
Where this is the case, there is very little point in trying to pre-package the company's assets for sale as it is unlikely that the agreed sale and purchase details will be agreed by the appointed liquidator.
