Pre-Packs: An update

In our second issue of Taking Account earlier this year, we looked at 'Pre-Pack' Administrations and their place in the business rescue tool bag.

The Government’s plans to introduce a three day notice period have been hit by objections from the insolvency profession and creditor groups. This comes as no surprise as the original proposals suited no-one and risked more businesses being liquidated instead of saved.

The Insolvency Service has revised its draft guidelines for the new legislation and instead of announcing the changes in the autumn as originally planned, the new rules are not likely to be implemented before April 2012. We are expecting an announcement in January 2012, allowing for a further period of consultation before the implementation.

The term ‘Pre-Pack’ refers to an arrangement where the sale of all or part of an insolvent company’s business and assets is negotiated with a purchaser prior to the appointment of an Administrator.

Once appointed, the Administrator then implements the sale either immediately on or shortly after formal appointment. Ed Davey, the Business Innovation & Skills minister responsible for insolvency said the proposed notice period would give creditors a chance to "express concerns... or make a higher offer for the assets". Our concern is that if the sale cannot be concluded quickly then the company’s own insolvency devalues and destroys the business, and key personnel and customers will leave.

Our focus at CLB Coopers is to maximise the realisable value of the assets and minimise the potential loss to creditors who may have already been harmed by the insolvency. We welcome transparency and clear disclosure of information, but fear that a long notice period will make it much harder to realise value for the creditors that these proposed changes are intended to protect.

If you or your clients and customers have any concerns about debt and insolvency or would like to discuss Pre-Pack Administration in more detail, please contact Diane Hill or Mark Getliffe on 0161 245 1000.