16th Dec, 2014While the great and the good try and decide on whether the pre-pack administration is a good thing that rescues a viable business from a failed company, or a rogues charter, IP's at the sharp end try and deal with clients situations on a case by case basis. Every situation has it's routine, familiar factors, and also some unique variables to consider, when formulating a plan of action. In situations where the owner/operator is seeking to continue with the business, often the pre-pack has certain key advantages over the alternative of a trading administration or CVA. These advantages however, do not always translate into a better outcome for unsecured creditors. For instance, where the employees jobs are saved by being transferred to the new company, the redundancy and notice pay liabilities which would otherwise be added to the insolvent estate and in all likelihood be paid by the Redundancy Payment Service out of the National Insurance Fund are avoided. However, this does not help unsecured creditors. Trading a company in Administration to achieve a sale to a third party is fraught with risk of incurring trading losses thereby wiping out any gain on the sale of the business in the open market. In addition, the likelihood of any uplift on the sale price being cancelled by a provision for TUPE liabilities by the purchaser makes the prospect of a good outcome via a trade sale less likely. And of course, the professional fees that are racked up managing the trading are likely to wipe out any premium achieved on any eventual sale. I wonder how much the fees on HMV or Blockbuster will be? The likelihood of a dividend to unsecured creditors on either of those two cases is unlikely, I'm guessing here, I might be proved wrong, but probably not. The pre-pack is a difficult procedure to deliver, but on occasion, it can provide the best outcome for what is usually a desperate situation. That said, there is clearly some abuse of the process going on in the market. For instance, any company that is subject to a CCJ will receive a number of letters offering professional assistance, some from Licensed firms, and some from unlicensed consultants such as the one I attach from Chiltern Consulting Limited, where the pre-pack is the weapon of choice and is being sold by way of a carefully crafted letter setting out the key benefits of the process. Perhaps a simple ban on marketing the process may provide creditors with some assurance that the pre-pack is only used when it is offered as an option by a qualified and licenced IP in the first instance, without being pre-sold by a sharp suited salesmen who has no duty to the creditors and is being paid a heft fee by the IP who is finally introduced to the client by the marketing company.