When it feels like a business has reached the end of the road, it doesn’t always mean the journey is over. Pre-pack funding provides a route to reignite the engine by selling the business and starting again — often doing this with the same people, products, and potential, but without the weight of unsustainable debt.
Why pre-packs are on the rise
Pre-pack administrations have become an increasingly important tool for struggling businesses that need a fresh start. While not without complexity or controversy, they can offer a vital route to recovery.
Other restructuring mechanisms have struggled to gain traction in the SME market. Part 26A restructuring plans – essentially a formal agreement between a company and its creditors (and/or shareholders) to restructure its debts to allow it to keep operations moving whilst getting on top of financial difficulties – often prove too complex or costly, while Company Voluntary Arrangements (CVAs) can be blocked by preferential creditor claims or creditor voting power. Against this backdrop, pre-packs have remained one of the most effective and popular routes to deliver a going concern outcome, protect jobs and preserve value.
Since I last wrote about this five years ago, the number of pre-pack deals in the UK has more than tripled. Data monitored by the Insolvency Service shows that in 2021, there were 201 pre-pack administrations in the UK. By 2024, that figure had risen to 628. Over the same period, connected person sales rose from 106 in 2021 to 395, representing 63% of all pre-pack sales.
At Ultimate Finance we’ve seen this rise first-hand. We also expect the upward trend to continue. COVID-19 may be in the rear-view mirror, but its effects still loom large (especially in construction and hospitality).
Add rising interest rates, inflation, and the weight of legacy debt, and it’s easy to see why struggling businesses are choosing this route.
What is a pre-pack administration?
A pre-pack is a type of insolvency procedure where the sale of a business and its assets is arranged in advance and completed immediately upon entering administration. Because the business can restart quickly, it preserves jobs, protects value, and avoids long-term damage to reputation and operations.
While this is a legitimate and valuable route when handled correctly, it’s not an easy process (and nor should it be). Regulatory changes, like the introduction of independent evaluator reports for connected party sales, have helped bring greater transparency and protection for creditors. That’s a good thing for the market.
Pre-packs are often used when a business is fundamentally viable, but is being weighed down by urgent financial challenges. Those challenges might come from cashflow disruption, legacy debt, or delayed contracts, but the goal is always the same: to provide a clean, legal break from unsustainable liabilities.
The benefits and risks of pre-pack funding
Handled properly, a pre-pack can be an effective way to safeguard business continuity. Benefits include:
- Retaining experienced directors who know the business
- Preserving jobs and avoiding operational downtime
- Maintaining asset value and supplier relationships
- Addressing underperforming contracts and legacy issues
- Lower administration costs and quicker resolution.
But pre-packs aren’t without their controversy. If handled poorly, they can be seen as a way for directors to sidestep liabilities or disadvantage creditors.
Common criticisms and risks include:
- Creditors may feel left out of the process if they aren’t properly consulted
- If assets are sold too quickly or without adequate marketing, there’s a risk they won’t achieve fair value
- Stakeholders may perceive the pre-pack as a “backroom deal”, which can harm trust in the new entity
- If the underlying issues aren’t fully addressed, the “newco” may face the same difficulties down the line
- Pre-packs are subject to increased oversight, and mishandling the process can lead to investigations or sanctions.
That’s why governance, transparency, and the appointment of reputable advisors are critical to the process. A well-run pre-pack must clearly demonstrate that it protects creditors’ interests and gives the business a realistic chance at recovery.
How to do pre-packs properly
Pre-packs move quickly, often with a matter of days between initial contact and completion. That means every party involved needs to act with clarity, urgency, and precision.
A well-structured pre-pack:
- Involves experienced insolvency practitioners and legal advisors
- Demonstrates the viability of the new business through credible forecasts
- Considers how legacy debt, contracts, and guarantees will be handled
- Has a clear ethical rationale, showing the benefit to all stakeholders
- Is properly substantiated through evaluator reports and due diligence.
Whilst pre-pack processes often move at speed, compliance with the Statement of Insolvency Practice 16 framework – the official governing guidance – is essential. Where sales involve connected parties — as is increasingly the case — independent evaluator reports (or creditor sanction) provide assurance that the transaction is appropriately valued.
Insolvency practitioners are also encouraged to engage with all material stakeholders, with clear communication playing a critical role in reassuring creditors and protecting supply chains.
Transparency is essential. If a director is buying the business back, the process must demonstrate the deal represents fair value and a genuine restart – not an escape route.
What happens after the sale?
A pre-pack sale may mark the legal transfer of a business, but it is only the beginning of the turnaround. What follows is often more challenging than the transaction itself.
Buyers need to put operational restructuring plans in place to ensure the business is viable for the long term. That might mean stabilising cashflow, reshaping contracts, or integrating the purchase as a bolt-on to existing operations. Unlike conventional acquisitions, pre-pack sales rarely come with warranties or guarantees, so identifying and managing risk becomes even more important.
Strong advisory support is essential. Inexperienced buyers in particular benefit from insolvency practitioners and legal experts who can guide them through the complexities, help price in potential risks, and build confidence among creditors and suppliers.
Alongside these operational steps, buyers frequently need fresh working capital and investment to execute their plans. Access to flexible, timely finance can make the difference between a smooth restart and a short-lived recovery — which is where the right funding partner becomes critical.
How Ultimate Finance supports successful outcomes
Ultimate Finance is well-versed in the speed and scrutiny required by pre-pack arrangements. We work exclusively with reputable advisors and expect high standards of transparency, due diligence, and fairness.
A line must be drawn between old and new. We’ll always assess the viability of the new business thoroughly by reviewing legacy obligations, financial forecasts, and the reasons for failure.
We’re clear: pre-pack deals must be ethical, transparent, and in the best interests of all stakeholders. That’s why we only work with trusted partners and take care to ensure every transaction is properly substantiated.
Finance to relaunch, support to stay on track
Every pre-pack is a fast-moving process with high stakes. At Ultimate Finance, we support these transactions with a range of funding options, including Invoice Finance, Asset Finance, property loans, and tailored structured facilities to meet the needs of both the original and restructured business.
In some cases, we also provide additional loan facilities to support continuity and cashflow in the early stages of restart.
But funding is just part of the picture. Our team works closely with clients and their advisors to understand the shape of the deal and spot any potential challenges. We don’t give formal advice, but we do share insight based on experience.
That might involve highlighting issues around legacy debt, credit control, or personal guarantees, and — where needed — connecting clients with trusted financial professionals such as financial managers or credit control specialists. It’s all part of helping the process run smoothly without dictating operational decisions.
The value of early engagement
In pre-pack scenarios, confidence and clarity matter. We aim to provide both.
Whether you’re an insolvency practitioner, broker, or director navigating uncertain waters, the earlier you engage with a funding partner like Ultimate Finance, the better. It gives everyone time to plan, assess options, and position the new business for long-term success.
We understand how high the stakes are because we’ve helped many businesses through this process. If you need a funding partner who can move fast, ask the right questions, and help keep your business moving, we’re here.
