Tony Mitchell
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Pre-Pack Administrations
27th January 2009 09:38
This is the first of two blogs looking at Pre-Pack Administrations. The next will appear in February.
The main topic of conversation in the insolvency world at the moment is the new guidelines in respect of Pre-Pack Administrations. BBC radio 4 even had an hour long program on the subject a week ago.
Are they commercially acceptable or are Pre-Pack Administrations simply an abuse of process? The truth is it depends on where you are sitting.
As a business owner who has hit hard times as a result of this current recession, a Pre-Pack Administration gives the opportunity to start again. For employees, it is a fact that they have a greater chance of keeping their jobs if there is a Pre-pack Administration, rather than liquidation and for customers, if there is no break in the supply or quality of the service or goods being supplied are they really concerned?
The biggest loser in any Pre-pack Administration is of course the unsecured creditor. There can be no greater frustration to unsecured creditors than to see a company that owes them thousands of pounds, close the doors on a Friday only to reopen them again on a Monday with almost the same name from the same premises doing the same thing but legally having no obligation to pay the old debts.
So can a Pre-Pack Administration ever be justified? In my opinion, yes it can.
For example, I am introduced into an insolvent company that cannot pay the wages at the end of the week, the bailiff is knocking on the door and the company is on stop with its key suppliers. The company has no money to enable it to continue to trade and no lender is prepared to advance further funds to allow the company to trade following the appointment of an Administrator, yet there is a business that is worth saving. Therefore, with no funds available, there is no opportunity for a marketing campaign to find a buyer and the owners have indicated that they wish to buy the business back.
In my opinion, the only two options available are liquidation or Administration. Liquidation will result in the immediate closure of the company and lose of jobs for its employees, a loss of a customer for suppliers and a break in continuity of supply for the company’s customers. A Pre-pack Administration avoids all of this and if done correctly, achieves the best price for the business and assets.
So how should a Pre-Pack Administration be done? Well that’s the topic of my next blog in February
