Pre-Packs Help Save Time, Money And Jobs

30 April 2009

Pre-packaged administrations – the colloquial term given to a sale of company assets to management or shareholders in a pre-arranged deal by a company administrator - help save time, money and jobs, says Kent debt recovery and insolvency specialist Martin Kingman.

Martin, who heads the debt recovery and insolvency team at leading regional law firm Furley Page, comments: “Recent high-profile ‘pre-packs’ include Whittards and The Officer’s Club. Karen Millen, who was originally a Kent-based designer, was included in part of the Mosaic group pre-pack following the collapse of the company’s Icelandic funders.

“The pre-pack phenomenon came about on the demise of the Enterprise Act 2002 where the emphasis on insolvency had shifted towards recovery and rescue far more than in the past. From the management’s point of view, pre-packs allow them to retain a majority of the workforce and to trade without the constant battle of trying to rob Peter to pay Paul.

“In contrast, creditors of a company in administration appear to lose out. They’re already smarting from the fact that they’ve potentially lost a large amount of money and often blame the management for their predicament.”

Martin believes that new guidelines on insolvency practice* produced by R3 (the Association of British Recovery Professionals) will be of enormous benefit to insolvency practitioners (IPs), appointed in administration for the benefit of the creditors as a whole, as well as helping to offset the major criticisms of pre-packs – namely:

• That by failing to put the sale of a company on the open market  you can’t guarantee that the best price has been achieved
• That the common perception of selling a business back to interested parties is that it has been done subversively and therefore in some ways is underhand

“The administrator must follow the new guidelines and any creditor who is dissatisfied or who is aware of any wrongdoings by previous officers of the company should speak to the administrator first, “advises Martin. “If he’s still concerned about an IP’s conduct he should seek specialist advice from another IP or an insolvency lawyer. It’s worth noting that IPs are regulated by a number of professional bodies and not by one sole regulatory authority.”

For further information on pre-packs contact Martin Kingman on 01634 828277.

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