If administrators can show the merits of a pre-pack sale of a company’s business, the Courts are likely to give the administrators liberty to enter into the pre-pack.

In the recent case of an insolvent law firm*, the Court was satisfied that the planned sale was the only way forward. The Court used the following test, laid down in a 2009 case**:

  • the next best offer was projected to realise a lesser sum for the general estate; and
  • the evidence showed the collection of book debts during an administration was likely to realise a lesser sum for the general estate, particularly in circumstances where the Solicitors’ Regulation Authority would be likely to intervene without the pre-packaged sale.

In that case, the prospective administrators asked the Court for liberty to enter the sale. The buyer insisted the administrators use part of the purchase price to repay partnership practice loans taken by partners to fund capital investments in the firm.  The money would otherwise have formed part of the general estate for distribution to the firm’s creditors in the usual way. The Court made an administration order and gave the administrators liberty to enter into the pre-packaged sale.

The first time the Court expressed support for a pre-pack sale was in 2009 **. There, the Court confirmed that if an administration order is sought, and the applicants propose a pre-pack sale, the Court will then assess the merits of the proposed sale. It will also consider whether the proposed administrators have followed the guidelines in SIP 16 when negotiating and agreeing a sale. In that case, the Court would not approve the pre-pack (and reduce the unsecured creditors’ rights to challenge the administrator’s decision),  but it declared the administrators were “at liberty” to enter into the sale.

The Court may also make no order about the pre-pack (which still leaves the administrators the ability to enter one). However, where it is obvious the pre-pack would be an abuse of the administrators’ powers, the Court could refuse to make an administration order or direct the administrators not to complete the sale.


The Court is concerned about the use of pre-packs in administrations, as it might lead to a solution convenient to the directors, secured creditors and IPs, which harmed the interests of creditors as a whole. The Court must be alert to see, as far as it could, the procedure was at least not obviously abused to the disadvantage of creditors. Administrators must give the Court enough detail to allow it to decide whether the proposed transaction is in the best interests of the company’s creditors as a whole. At the least, this would be the information required by SIP 16.

In another law firm case***, the Court noted that, far from being an abuse of the process, the proposed pre-packs were the only way forward. The Court also held the pre-packs did not unnecessarily harm the interests of creditors as a whole. This goes further than the Court did in 2010 – this finding  would make it difficult for a creditor to challenge the administrators’ decision to enter the pre-pack.

*Re Manches LLP 2013 (unreported)

** Re Hellas Communications [2009] EWHC 3199 

*** Re Halliwells [2010] EWHC 2036 (Ch)

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.