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Buying a business out of a pre-pack administration: what you get, what stays behind and who you deal with

By Provenance Diligence team · .

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Contents

  1. What you buy and what stays behind
  2. Charges, hire purchase and retention of title
  3. The SIP 16 statement: the document to read first
  4. The name, the VAT and the transfer of a going concern
  5. Sources

What you buy and what stays behind

Short answer: You buy the assets and business named in the sale agreement. The old company keeps the debts unless a rule moves them to you. Rules do move some: employee rights under TUPE, the VAT registration number if you take it over, and security or ownership claims that follow the goods.

The seller in a pre-pack is the company in administration. The contract is therefore between your buying company and that company, signed by the administrator as its agent (Sch B1, para 69). Everything you receive is what that contract lists. If a customer list, a domain name, a trademark, a stock count or a vehicle is not in the schedule of assets, assume you have not bought it, and ask for it to be added before signing.

What normally sits on the "left behind" side

Trade creditors, the tax debts of the old company and loans stay with the old company. Unsecured creditors are paid, if at all, from what the administration realises after secured and preferential creditors. The Graham Review examined the sample of pre-packs in which a distribution reached unsecured creditors. The median payment was 4.3 pence in the pound, and the middle half of cases fell between 1.5 and 12.9 pence (Graham Review report, para 7.34). In the comparison group of trading administrations, 56% paid nothing to unsecured creditors (Graham Review report, para 7.35).

Why does that matter to you? Unpaid suppliers are your future suppliers. A supplier left with a 4p-in-the-pound dividend may refuse credit to the new business. That is a commercial consequence for you, not a legal liability, and it should shape your working-capital plan in the first three months.

The assets that justify the price

Ask the administrator for the asset schedule that sits behind the price. The SIP 16 statement must show how the price splits between fixed-charge and floating-charge assets and any deferred element (SIP 16, appendix). For a buyer, the split tells you which creditor has the first claim on your payment, and therefore who may challenge a low price.

Intangible assets deserve a separate question. The Graham Review found that the independent valuations in its sample were often desk-top exercises limited to tangible assets and property, not intellectual property or goodwill (Graham Review report, paras 3.10 and 7.80). If goodwill and brand are what you want, check that the agreement lists them and that your payment covers them. Ask the valuer to state whether the valuation includes goodwill, in the valuation report itself, dated before the sale.

What to do before you go further

Ask the administrator for four documents before you invest more time. The first is the appointment notice with its date. The second is the register of charges for the old company. The third is the draft sale agreement with its asset schedule. The fourth is the draft SIP 16 statement, which the administrator must issue within seven calendar days of the transaction (SIP 16, para 20). If the draft is not available before completion, ask what the final one will cover, using the list in section 3.

Charges, hire purchase and retention of title

Short answer: A lender with a charge, a finance company with goods on hire purchase and a supplier with a retention of title clause can each have rights over specific assets. The administrator may need a court order to sell some of them free of those rights. Check the register and ask for any order or release before you pay.

Three kinds of claim attach to assets, and each is handled by a different part of Schedule B1.

Floating charges

A floating charge covers a changing pool of assets, such as stock and debtors. The administrator may sell property that is subject to a floating charge as if it were not charged (Sch B1, para 70(1)). The chargeholder keeps the same priority over whatever the administrator acquires in exchange (Sch B1, para 70(2)). So a floating-charge lender does not stop your purchase, but it is paid first from the proceeds.

The consequence for you is mostly about price. A lender with a floating charge has first call on the money after the costs and preferential debts, so it often has the strongest voice on what the business is worth.

Fixed charges

A fixed charge sits on a specific asset, such as a property or a piece of equipment. The administrator can sell that asset free of the charge only if the court makes an order, and only if disposal is likely to promote the purpose of the administration (Sch B1, para 71(1) and (2)). The secured amount is then paid from the net proceeds, topped up to market value where the sale is below it (Sch B1, para 71(3)). A copy of the order must reach the registrar within 14 days (Sch B1, para 71(5)).

Market value here means the amount realised on a sale in the open market by a willing vendor (Sch B1, para 111(1)). That definition is the benchmark if the court is asked whether a fixed-charge asset is being sold too cheaply.

If the sale agreement includes a fixed-charge asset, ask for one of two things: the court order, or a written release from the chargeholder. Do not accept a verbal assurance that the charge is "dealt with".

Hire purchase, leased goods and retention of title

Finance companies that supply equipment or vehicles on hire purchase keep ownership until the last payment. The administrator can sell such goods free of the owner's rights only with a court order, on the same terms as fixed-charge property (Sch B1, para 72(1)-(4)).

The statutory definition of a hire-purchase agreement is wide. It includes conditional sale agreements, chattel leasing agreements and retention of title agreements (Sch B1, para 111(1)). A supplier who delivered stock on terms that keep ownership until payment is therefore inside the same protection. The legal basis for those terms is that a seller may reserve the right of disposal, so that ownership does not pass until the seller's conditions are met (Sale of Goods Act 1979, s.19(1)).

For a buyer of a business with stock, this has a practical meaning. Stock on the shelves may belong to a supplier. Ask the administrator for a list of suppliers who have asserted retention of title, the date each asserted it, and the stock affected. If that list is not available, ask for the stock to be excluded from the price until it is.

Unregistered charges

A charge created by a company must be delivered to the registrar of companies for registration within 21 days beginning the day after its creation (Companies Act 2006, s.859A(4)). An unregistered charge is void against a liquidator, an administrator and a creditor, but the debt it secures stays payable (Companies Act 2006, s.859H(3) and (4)).

So the register does not tell you who is owed money; it tells you who has security over assets. A lender whose charge is missing from the register still has a claim to repayment. If you spot a lender in the paperwork who is not on the register, ask the administrator whether the lender has asserted a claim over any asset you are buying.

The moratorium that protects the deal

While the company is in administration, nobody may enforce security over its property, repossess hire-purchase goods, forfeit a lease by peaceable re-entry, or start or continue legal process without the administrator's consent or the court's permission (Sch B1, para 43(2), (3), (4) and (6)). That freeze is what lets the administrator complete a sale cleanly. It does not remove the claims; it pauses them. Your task is to see how each claim is settled before you pay.

One question to put to the administrator: for each fixed-charge or hire-purchase asset on the schedule, has the court made an order under para 71 or 72, or has the chargeholder released it in writing? If neither, get the answer in writing before completion, and have your solicitor check the position on the register.

The SIP 16 statement: the document to read first

Short answer: SIP 16 is the practice statement that makes the administrator explain a pre-pack to creditors. Its statement is the best single document a buyer can ask for, because it lists the price, the marketing, the valuers, the charges and the buyer's connections. Ask for it before you sign, and compare it line by line with your own sale agreement.

SIP 16 is Statement of Insolvency Practice 16, in the version dated 30 April 2021, which covers England and Wales and Scotland with identical paragraph numbers. It sets the standard that insolvency practitioners follow when they sell a business in a pre-pack. Its stated aim is that a reasonable, informed third party reading the SIP 16 statement could conclude that the sale was appropriate (SIP 16, para 8).

The administrator provides the SIP 16 statement with the first notification to creditors, and in any event within seven calendar days of the transaction. It is also included in the statement of proposals (SIP 16, para 20). The administrator is expected to seek creditor approval of the proposals as soon as practicable (SIP 16, para 21). A buyer who asks for the statement before completion is asking for something the administrator must produce within a week anyway.

What the statement must disclose

The statement's appendix lists the disclosures. Each item is a question you can put to the administrator, and the answers tell you where the price came from and who stands behind it. The list is long, so the table groups it by what you do with the answer.

GroupDisclosure itemsWhat you do with the answer
How the deal aroseSource and date of introduction; pre-appointment involvement; alternatives considered; creditor consultation; why not trade on; funding requestsCheck the dates against the notice of intention
The assetsRegistered charges with dates; fixed and floating split; acquisitions from an insolvency process in the previous 24 monthsMatch the charges to the register; see section 2
The priceMarketing; valuers and valuations; transaction date; consideration; payment terms; options and buy-back; deferred consideration and its securityRead it in full
The buyerIdentity and connections; former directors involved; director guarantees to a prior financier who is financing the new businessRead it in full
Connected salesA copy of the qualifying reportRead it in full

One item deserves attention. The statement must say whether the buyer has acquired a business from an insolvency process in the previous 24 months (SIP 16, appendix). A buyer who used the route twice in two years is a different counterparty from a first-timer. If you are the buyer, expect to be asked.

Confidentiality and connected sales

Administrators sometimes withhold information on grounds of commercial confidentiality. For connected sales, the practice statement says commercial confidentiality alone is very unlikely to outweigh disclosure (SIP 16, para 19). That sentence reads as a standard for the administrator, not as a right for the buyer. Still, if you are a connected buyer and you are asked to keep your funding details out of the statement, this is the paragraph to put to your adviser.

The viability statement

A buyer who pays over time makes the administrator's life harder. The practice statement expects the administrator to see a viability statement showing how the purchaser will survive for at least 12 months (SIP 16, para 12 and footnote 2). The Insolvency Service's guidance on independent scrutiny notes that deferred payments make a viability statement or business plan more likely to be requested.

The numbers show why. In the Insolvency Service's 2020 review of pre-packs, only 45 of 163 connected sales in the sample (28%) included a viability statement, and 69% of those were still trading after 12 months (Pre-pack sales in administration report, 8 October 2020). Prepare the statement as a cash-flow forecast by month, with named sources of funding, and give the administrator a copy before the sale agreement is signed.

Reading the statement against the sale agreement

Read the two documents against each other in a fixed order. This is a sequence you can use on any pre-pack file, and each step tests one point.

  1. Match the price in the statement to the price in the sale agreement, including any deferred element.
  2. Match each asset class named in the statement to the asset schedule.
  3. Match the charges in the statement to the Companies House register for the old company.
  4. Check the date of the sale against the date of the appointment and the date of the notice of intention.
  5. Read the marketing section for dates and channels, and check them against the valuation report's date.

A difference at any step is a question for the administrator, in writing. The reply becomes part of your file if the deal is later challenged.

Who monitors the statements

The professional bodies that authorise insolvency practitioners review the statements. In 2024 the Insolvency Practitioners Association received 316 SIP 16 statements and reviewed 76; 72 were generally compliant and 4 were not, and none led to regulatory action (Annual Review of IP Regulation 2024, Table 7). The review figures are the regulator's numbers for one body in one year, so treat them as context. They do not tell you whether your own file is complete.

The name, the VAT and the transfer of a going concern

Short answer: Two filings protect your first weeks. If a former director of the old company will run the new one under a similar name, the notice rule in regulation 22.4 of the Insolvency Rules must be met within 28 days of completion. And if you want to buy without VAT, the going-concern conditions must be met before completion, because they cannot be backdated.

The prohibited name

Section 216 of the Insolvency Act 1986 applies to a person who was a director or shadow director of a company at any time in the 12 months before it went into insolvent liquidation. For five years that person may not be a director of, or be concerned in the promotion, formation or management of, a company with a prohibited name, or carry on a business under such a name (IA 1986 s.216). Breach is also an offence (IA 1986 s.216).

A prohibited name is a name by which the old company was known in the 12 months before liquidation, or a name so similar to it as to suggest an association with it (IA 1986 s.216(2)). "Insolvent liquidation" means the company's assets were insufficient to pay its debts, other liabilities and the expenses of winding up (IA 1986 s.216(7)). A pre-pack that ends in liquidation can therefore bring the rule into play for the old directors.

The rule matters for you in one case: you are a former director of the old company, or you are hiring one to run the new company. An outside buyer who takes a different name is outside the rule.

The exception in rule 22.4

Rule 22.4 of the Insolvency (England and Wales) Rules 2016 gives an exception where the business is acquired from the company under arrangements made by an administrator or liquidator. The buyer must give notice to the old company's known creditors and publish a notice in the Gazette. The notice may be given before completion and must be given no later than 28 days after it (IR 2016 r.22.4(3)(a)).

The exception has a limit. A person who has already breached section 216 cannot use it (IR 2016 r.22.4(5)). So the sequence matters: the notice comes first, and trading under the name comes after.

Put the date on your completion checklist. Count 28 days from the completion date, and ask your adviser to confirm which creditors count as known creditors on that date. The question to put is: "Which creditor list do we use for the rule 22.4 notice, taken from which document and as at which date?"

Buying without VAT: the going-concern rule

The sale of a business as a going concern is outside the scope of VAT when the conditions are met. HMRC's Notice 700/9 says a business under an administrator can still be a going concern, and that the buyer must carry on the same kind of business (Notice 700/9, paras 2.2.1 and 2.2.2). The Special Provisions Order covers the whole of a business, or a part that can operate separately, where the buyer carries on the same kind of business (VAT (Special Provisions) Order 1995, art 5(1)).

The treatment is compulsory when the conditions are met (Notice 700/9, para 1.4). That cuts both ways. A buyer cannot pay VAT in a deal that qualifies and expect to reclaim it, because VAT wrongly charged cannot be reclaimed by the buyer (Notice 700/9, para 2.1).

The buyer's VAT registration

The most common failure is registration. The buyer must already be VAT-registered, or be required to register because of the transfer, or have been accepted for voluntary registration before the transfer. Backdating the registration does not work (Notice 700/9, para 2.2.4). The step belongs in the week before completion, not the week after.

If the old company's premises are part of the deal, there is a second condition. Land and property need the seller's option to tax and the buyer's option to tax in place by the relevant date, with notification (Notice 700/9, paras 2.3 to 2.3.3). Ask the administrator whether the seller has opted to tax the property, and ask your adviser to confirm the notification date.

Taking over the VAT number

Form VAT 68 transfers the old company's VAT registration number to the buyer. If the buyer uses it, the buyer takes on the outstanding VAT liabilities attached to that number (Notice 700/9, para 3.3). Weigh that before you choose. A new registration avoids the old liabilities but starts a fresh record; the transferred number brings the history, and the debt, with it.

The seller keeps the business records after the sale, but must supply the buyer with information on request (Notice 700/9, para 3.4). Ask for a list of the records you will need and the date by which the administrator will supply them. Name them in the sale agreement, because the administrator is no longer the owner of the business that generates them.

A note on HMRC's position in the ranking

HMRC is a secondary preferential creditor for insolvencies starting on or after 1 December 2020. VAT, PAYE income tax, employee National Insurance contributions, student loan deductions and construction industry scheme deductions rank after the fixed-charge holder, the insolvency practitioner's fees and the ordinary preferential creditors, and ahead of floating-charge holders and unsecured creditors. Corporation tax, employer National Insurance, penalties and interest are not in this group (HMRC as a preferential creditor, GOV.UK).

For a buyer, this ranking explains why the money left for unsecured creditors in a pre-pack is small, and the same figures appear in section 1.

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Sources

All pages below were retrieved on 2026-11-06.

Statute and regulations

Practice statement, guidance and official reviews