Pre-pack administrations have always attracted a particular kind of controversy. The business disappears into administration on a Friday and re-emerges under new ownership — often the same management — on Monday morning, with creditors learning of the transaction only after it has completed. That model persists. What has changed, fundamentally, is the legal and regulatory architecture that governs it. Directors, creditors, and advisers who assume the rules are as they were five years ago are operating on dangerous ground.
The Scale of the Problem
The context in which pre-packs are being used has shifted dramatically. According to the Insolvency Service's December 2025 statistics, there were approximately 23,938 company insolvencies in England and Wales across 2025 — a level broadly consistent with 2024 and only marginally below 2023, which recorded the highest annual total since 1993. Monthly administration volumes have more than tripled over this period, rising from 43 in May 2021 to 136 in May 2025. These are not marginal fluctuations. They reflect a sustained, structurally elevated level of corporate distress driven by the withdrawal of pandemic-era support measures, persistent cost pressures, and the residual effects of supply chain disruption.
Against that backdrop, the use of pre-pack administrations has surged. The Annual Review of Insolvency Practitioner Regulation 2024, published by the Insolvency Service in June 2025, records that the number of pre-packs rose from 201 in 2021 to 628 in 2024 — an increase of 212% in three years. Connected party sales followed the same trajectory: from 106 in 2021 to 395 in 2024, with an intermediate figure of 329 in 2023. Pre-packs now represent a significant and growing share of all administrations, and the connected party variant — the most legally and commercially sensitive category — accounts for the majority of them.
What a Pre-Pack Is, and Why It Remains Attractive
A pre-pack administration is an arrangement under which the sale of all or a substantial part of a company's business or assets is negotiated before the administrator's appointment, with the sale completing immediately upon or shortly after that appointment. The mechanism is not expressly defined in the Insolvency Act 1986, but it is well-established that an administrator may exercise statutory powers of sale without prior creditor approval or court leave. The attraction is unambiguous: speed preserves value. Customer and supplier relationships are maintained, employees are transferred without disruption, and goodwill — which evaporates rapidly once insolvency becomes public — is protected.
Those advantages are real, and they explain why, even under heightened regulatory scrutiny, the market continues to use the tool. The difficulty arises when the buyer is connected to the insolvent company: a director, a controlling shareholder, or a person with sufficient knowledge of the business to have negotiated an advantageous position that arms-length purchasers could not have replicated. In that scenario, the transaction is commercially rational for the buyer, but the interests of unsecured creditors — who receive nothing until after secured creditors and the costs of administration are met — are potentially subordinated to the interests of those who caused or contributed to the insolvency.
The Graham Review Legacy and Creditor Returns
The empirical evidence on connected party pre-packs has never been favourable. The Graham Review — the 2014 independent review of pre-pack administration chaired by Teresa Graham CBE — found that connected party pre-packs had a business failure rate of 29% within three years, compared with 16% for unconnected sales. Average returns to unsecured creditors in connected party transactions were 6.07%, against 8.82% where the purchaser was unconnected. These are not marginal differences. They indicate a systematic pattern in which creditors fare materially worse when the business is sold back to those who managed it into insolvency.
Those findings informed the voluntary measures introduced in 2015 — including the Pre-Pack Pool referral mechanism, under which prospective buyers could voluntarily seek an independent opinion — and, when those measures proved insufficient, the legislative intervention that followed.
The 2021 Regulations: What They Actually Require
The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 (SI 2021/427) came into force on 30 April 2021. They apply to any administration commencing on or after that date, and they impose a binary requirement on administrators: before completing any substantial disposal of the company's assets to a connected person within the first eight weeks of appointment, the administrator must either obtain prior creditor approval for the transaction, or obtain and rely upon a qualifying evaluator's report.
The definition of "connected person" is drawn widely, with the Regulations expressly cross-referring to paragraph 60A of Schedule B1 to the Insolvency Act 1986 and section 435 of that Act. Directors and shadow directors are obviously caught. So are shareholders holding significant stakes. More significantly, secured lenders may fall within the definition where they exercise sufficient control over voting rights — an issue of real practical importance given the prevalence of debt-for-equity arrangements and lender-led restructurings in the current market. The Regulations make no allowance for ignorance: administrators who cannot confirm that a proposed buyer is unconnected must conduct thorough due diligence on the point before proceeding.
The Evaluator Report: Mechanism and Independence
In practice, the evaluator report has become the dominant route. Of the connected party sales completed in 2024, only one sought creditor approval rather than relying on an evaluator's report — a figure that reflects both the practical impossibility of obtaining creditor approval within the compressed timescales of a pre-pack and the relative accessibility of the evaluator route.
The evaluator's report must be commissioned by the connected party — not by the administrator. The evaluator must report on whether there are reasonable grounds to believe that the consideration offered is not less than the market value of the property, and that the grounds for the transaction are reasonable. The independence requirements are strict: the evaluator must not be connected to, or an associate of, the administrator, the company in administration, or the connected party. Critically, the Regulations contain provisions designed to prevent "report shopping" — if the connected party has previously sought an evaluator's report on the same or a substantially similar transaction and that report is adverse, any subsequent report must be disclosed alongside the earlier one. The administrator cannot simply ignore an unfavourable opinion.
It is worth being precise about what the evaluator's report does not do. It is not a veto. An administrator may proceed with a transaction even where the evaluator's opinion does not endorse it, provided the administrator can otherwise justify the disposal by reference to the administrator's overarching statutory duties. That said, proceeding against an adverse evaluator's report creates significant professional and regulatory exposure for the insolvency practitioner, and in practice such circumstances are exceptional.
SIP 16 and Ongoing Disclosure Obligations
The evaluator regime sits alongside the continuing obligations under Statement of Insolvency Practice 16 (SIP 16), the professional standard governing the conduct of pre-pack administrations. SIP 16 requires administrators to provide disclosure to creditors explaining why the pre-pack sale was in their best interests — including information about the marketing process undertaken before appointment, the valuations obtained, and the rationale for concluding that an immediate sale was preferable to an open market process through the administration. The Recognised Professional Bodies responsible for licensing insolvency practitioners monitor SIP 16 disclosure statements, and deficiencies in the quality of disclosure remain a focus of regulatory attention.
The combination of SIP 16 and the 2021 Regulations has introduced a degree of external scrutiny that was absent from the pre-pack market for most of its history. Whether that scrutiny is sufficient — given the inherent information asymmetries between insolvency practitioners and creditors, and the speed at which pre-pack transactions are completed — is a question that regulators continue to examine.
The Alternatives: CIGA 2020 Tools and Their Underutilisation
Any analysis of the pre-pack market must be set against the tools that were introduced precisely to reduce reliance on it. The Corporate Insolvency and Governance Act 2020 introduced two significant new mechanisms: the standalone moratorium, which gives eligible companies a 20-business-day breathing space from creditor action, extendable with creditor or court consent; and the restructuring plan under Part 26A of the Companies Act 2006, which allows a company to propose a compromise with its creditors and members and have it sanctioned by the court on terms that can bind dissenting classes.
The uptake of both mechanisms has been disappointing. Between June 2020 and November 2025, only 67 moratoriums were obtained and 56 restructuring plans were filed — figures that underline the persistent preference among distressed companies and their advisers for the speed and certainty of a pre-pack over the procedural demands of a CIGA 2020 process. Moratoriums, in particular, are unavailable to financial services firms and certain other entities, and the requirement that a monitor certify ongoing viability throughout the moratorium period has proven a barrier in genuinely distressed cases where prospects are uncertain. Restructuring plans, meanwhile, have been used almost exclusively by large corporates, given the cost and complexity of the cross-class cram-down mechanism.
The practical conclusion is that the pre-pack administration remains, for the majority of mid-market and smaller insolvency situations, the most efficient rescue tool available — which makes the regulatory framework governing it all the more important.
EU Developments and the Broader Trajectory
Pre-packs are not merely a UK debate. The European Union's proposed Insolvency Directive — which aims to harmonise certain aspects of insolvency law across Member States, including the conduct of pre-packaged sales — has advanced through the legislative process, with the European Parliament adopting amendments on 1 July 2025 (A10-0126/2025). The Commission's original ambition was to have the Directive adopted by January 2026, though the timeline has slipped. Notably, the Proposal would require all Member States to permit pre-pack sales to related parties — a requirement that has attracted criticism from academic commentators who argue it legitimises a process that the data suggests produces systematically worse outcomes for creditors.
For UK practitioners, the EU Directive is of relevance in two respects. First, it will shape the insolvency landscape for businesses with cross-border operations, affecting how administrators approach the scope of a pre-pack sale where assets or counterparties are located in EU jurisdictions. Second, the comparative regulatory approach — the EU moving towards harmonisation as the UK continues to develop its own post-Brexit framework — creates the potential for divergence in how connected party transactions are treated on each side of the Channel.
Practical Guidance for Directors, Creditors, and Advisers
The surge in pre-pack volumes, combined with the regulatory changes of the past five years, creates a set of practical imperatives for each constituency involved:
The Outlook
The 212% increase in pre-pack volumes since 2021 is, in one sense, a market signal: the tool works, practitioners are using it, and the 2021 Regulations have not chilled demand to the degree that some anticipated. The evaluator mechanism has provided a workable route to compliance, and the data showing only one creditor approval in 2024 suggests that the market has settled on that route decisively. The Insolvency Service's own assessment is that the evaluator regime has been effective in increasing stakeholder confidence, while preserving pre-packs as a viable business rescue mechanism.
That assessment is not, however, complacency-inducing. The Graham Review's underlying data — lower creditor returns, higher failure rates — predates the 2021 Regulations. Whether the evaluator regime has improved those outcomes materially is a question that updated empirical data has not yet fully answered. Regulators retain the power, under the Corporate Insolvency and Governance Act 2020, to impose more restrictive conditions on connected party pre-packs, or to restrict them further. The EU legislative process adds an external dimension to the policy debate. And the sheer volume of cases entering the market — with insolvency numbers near 30-year highs — means that the quality of individual pre-pack processes will be under sustained scrutiny.
Pre-packs are back. The regulatory framework that governs them has materially changed. The commercial and legal imperatives that drive their use remain as powerful as ever. Understanding the current rules — precisely and in full — is not optional.
Lexkara & Co advises directors, creditors, and businesses navigating corporate distress, including pre-pack administrations and connected party transactions. If you are facing an insolvency situation or require advice on the regulatory framework governing pre-pack sales, we welcome your enquiry.