Pre-packaged Insolvency

The pre-packaged administration (pre-pack) involves the disposal of shares (or business and assets) by a company immediately after the appointment of an insolvency practitioner. (Very occasionally a pre-pack can also be affected via a receivership. This possibility is not discussed further in this article.) Such disposals are sometimes to parties entirely uninterested in the previous company's affairs but sometimes to special purpose vehicles established by out-of-the-money senior lenders.

Pre-packs have had a fair amount of bad press of late for disadvantaging unsecured creditors. The argument runs that a deal has been pre-arranged to preserve as much value as possible for the secured senior creditors without necessarily allowing the...