Pre-Pack Administration : Still a Vital Weapon in the Business Recovery Armoury

There was a time when a private company going into terminal decline had very few options apart from filing for bankruptcy.
From: HW Fisher
March 27th, 2013 | 1 Comment

There was a time when a private company going into terminal decline had very few options apart from filing for bankruptcy. Today, however, businesses which are basically sound but simply need financial restructuring can access the skills and contacts of insolvency practitioners and business recovery experts at larger accountancy firms. Provided contact is made before the very last minute, these professionals can move in, make detailed assessments and quickly conclude which is the most appropriate solution. This may avoid liquidation but, even if it doesn’t, there is no reason why the business cannot be revived under a different guise and go on to prosper. In today’s commercial environment, it really is possible to enjoy life after death.

One of the most talked about business recovery devices to have emerged in recent years is, of course, pre-pack administration which has been used in the case of such high profile names as Blacks Leisure, La Senza and Bonmarche. This basically involves the sale of the business and assets of a company, free of liabilities, to predominantly a ‘connected party’ immediately following the appointment of an administrator. More often than not, the people buying the business are the existing management team (hence the ‘phoenix’ tag often given to pre-packs, as the previous business rises from the ashes of the old company but with the same people involved).

This mechanism has, in the past, been the subject of a poor press insofar as it just looks too like a sophisticated version of the old frowned upon practice whereby a company’s owners would declare it bankrupt and then immediately re-open under a new company name but with the same office furniture and clients etc.

In order to try to improve the acceptability of pre-packs and provide creditors with more re-assurance, the Coalition Government has been looking at possible new legislation imposing such requirements as giving creditors a 3 day notice period before a pre-pack takes place.

Insolvency practitioners have lobbied hard against any new rules which might delay the rescue of businesses in urgent need of financial assistance. The government seems to have taken these objections on board and it now looks as though the Involvency Practitioners’ own regulatory body, the Insolvency Service, will instead be putting forward their own proposals to introduce greater transparency and protection for creditors.

It seems the one thing that everybody is agreed upon is that pre-packs provide a vital role in preserving viable businesses and the employment they sustain. As always, however, it is the poor creditors of the previous incarnation that lose out regardless of what happens and there doesn’t appear to be anything that can be done to mitigate their losses.

HW Fisher & Company is a commercially astute organisation – ranked as a mid-tier top 25 UK chartered accountancy firm, with a personal, partner-led service aimed at entrepreneurial small, medium enterprises (SMEs), large corporates and high-net worth individuals.

HW Fisher specialises in business recovery services.  For more information please visit http://www.hwfisher.co.uk/business-recovery-and-insolvency

  • Derek Gurgiter

    The principle is great and lovely, however it is becoming widespreadly abused by companies. What point is there in businesses trading, when essentially this stops no-one cottoning onto it being a way to acquire assets on credit and walk away from paying for them. Assisted thievary very often.