The short answer
A pre-pack administration is where the sale of an insolvent company’s business and assets is arranged before an administrator is appointed and then completed on, or immediately after, appointment. It allows a business to continue with minimal disruption. The sale — especially to a connected party such as the existing directors — must be disclosed under SIP 16, and connected-party sales require an independent Evaluator’s opinion.
Pre-packs are one of the most discussed and misunderstood tools in insolvency. Done properly they preserve jobs and value; done badly they look like a director shedding debt and carrying on. This guide explains how a pre-pack works and the safeguards — SIP 16 and the Evaluator — that keep it accountable.
Pre-pack at a glance
- What it is Sale arranged before administrator is appointed
- When it completes On or just after appointment
- Key benefit Business continuity, jobs preserved
- Disclosure rule SIP 16 statement to creditors
- Connected-party sale Needs an Evaluator’s opinion
- Run by A licensed insolvency practitioner
How a pre-pack works
In an ordinary administration, the administrator is appointed first and then markets the business to find a buyer. In a pre-pack, the order is reversed: the sale is negotiated and agreed in advance, so that the moment the administrator is appointed the business and its assets are sold — often back to the existing management operating through a new company. The aim is speed and continuity. Because the deal completes instantly, customers, staff and supplier relationships are preserved before the public news of insolvency can damage them. The administrator’s role is to satisfy themselves that the sale represents the best available outcome for creditors before signing it off, and then to account for it afterwards.
Why pre-packs are used
- Continuity — the business does not stop trading, so goodwill and contracts survive.
- Jobs — employees often transfer to the new owner under TUPE.
- Value — a going-concern sale usually beats a break-up of individual assets.
- Speed — it avoids the value destruction of a public, drawn-out closure.
The trade-off is that the sale is arranged in private, before creditors are consulted, which is why pre-packs have long been controversial and why the safeguards described below exist. Critics worry that, without scrutiny, a pre-pack can let the same people walk away from the debts of an old company and carry on with the profitable parts of the business. Supporters point out that, handled properly, a pre-pack saves jobs and recovers more for creditors than a disorderly collapse ever would. Both can be true, which is why the rules focus on transparency and independent checks rather than banning the practice outright.
SIP 16 — the disclosure safeguard
Because a pre-pack is agreed behind closed doors, transparency after the event is essential. Statement of Insolvency Practice 16 (SIP 16) requires the administrator to send creditors a detailed statement explaining the sale: why a pre-pack was the right route, how the price was reached, what marketing or valuation was carried out, the alternatives considered, and the identity of the buyer and any connection to the old company. This lets creditors judge for themselves whether the deal was reasonable and properly handled.
| Safeguard | Applies to | Purpose |
|---|---|---|
| SIP 16 statement | All pre-packs | Explain and justify the sale to creditors |
| Evaluator’s opinion | Connected-party sales | Independent view on whether the deal is reasonable |
Connected-party sales and the Evaluator
The most scrutinised pre-packs are sales to a connected party — for example, the company’s own directors or their relatives buying the business through a new company, a structure often called a “phoenix”. Since 2021, where a substantial sale of assets is made to a connected person within eight weeks of administration, the purchaser must either obtain a written opinion from an independent Evaluator confirming the terms are reasonable, or the administrator must explain to creditors why they proceeded without one. The Evaluator regime was introduced to reassure creditors that connected sales are not being used to dump debt while the same people carry on the business.
Pre-pack versus ordinary administration
A pre-pack is a type of administration, not a separate procedure with different objectives. The only real difference is timing: the sale is lined up before appointment rather than after it. Whether a pre-pack or a conventional, openly marketed sale gives the best result depends entirely on the case, and the administrator must always be able to show they acted in the interests of creditors as a whole. Used properly, with full SIP 16 disclosure and, where needed, an Evaluator’s opinion, a pre-pack is a legitimate rescue tool rather than a way to escape obligations.
Considering a pre-pack to save the viable part of your business?
A licensed insolvency practitioner must run the process and disclosure properly. A confidential discussion will tell you whether a pre-pack is appropriate and defensible.
Frequently asked questions
Is a pre-pack administration legal?
Yes. It is a recognised and lawful form of administration, subject to SIP 16 disclosure and, for connected-party sales, an independent Evaluator’s opinion.
Can directors buy back their own company in a pre-pack?
They can, through a connected-party purchase, but the sale must be supported by an Evaluator’s opinion or explained, and the old company is still investigated.
What is SIP 16?
Statement of Insolvency Practice 16 requires the administrator to give creditors a detailed statement justifying the pre-pack sale, including marketing, valuation and the buyer’s identity.
What is the Evaluator in a pre-pack?
An independent person who, in a connected-party sale, gives a written opinion on whether the terms of the sale are reasonable before it can complete without further explanation.
Sources & further reading
- GOV.UK — Pre-pack administration sales
- The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021
- SIP 16 — Statement of Insolvency Practice (pre-packaged sales)
- The Insolvency Service — guidance for company directors
This guide is general information, not formal insolvency advice. Your situation must be assessed by a licensed insolvency practitioner before you act.