Court — ‘blessing’ of pre-packs

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…

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