'Pre-pack' rescue deals under the spotlight as clients seek fairer system
Last week's 'pre-pack' deal to save Thomas Crosbie Holdings helped the firm but left some creditors high and dry. In Britain, the government is now looking at whether creditors should be given notice of such deals, writes James Hurley
OPPONENTS of so-called 'pre-pack' administrations in the UK have been boosted by the launch of an independent review that could see creditors finally given a grace period to challenge the controversial deals.
The British government has commissioned a probe of administrations that allow firms that are about to collapse to be restructured and sold to new owners – typically the existing management – without the consultation of unsecured creditors.
The Insolvency Service, the industry regulator, admitted that the review could revive a plan to give connected parties three days' notice ahead of a pre-pack.
A "grace period" was originally proposed by the government in 2011 but later shelved amid concerns that it would publicise a company's difficulties and lead to an erosion in value of its assets.
However, creditors' represent-atives argue that tougher rules are needed to stop abuses of pre-packs and are seeking a notice period to allow creditors to express concerns about the sale process or make a higher offer for the assets. High-profile cases in the UK include beds retailer Dreams, lingerie outlet La Senza and property agent DTZ, whose sale left unsecured creditors with nothing.
Carole Hughes, managing director of credit management business Daniel Silverman, welcomed the review. "Pre-packs are often grossly unfair to creditors and stronger controls are needed. I have witnessed first hand the devastating effect it causes to our clients' businesses, some of whom have ceased trading as a result."
Sometimes, creditors do not even realise that a pre-pack has taken place until they contact a customer to chase payment.
The Insolvency Service said the review "will enable further evidence to be assembled on how pre-packs are working in practice and whether further steps are needed (to increase transparency and prevent abuse)."
Graham Horne, the Insolvency Service's deputy chief executive, said: "Pre-packs often preserve value and jobs but they look bad in some cases and they can be used as a mechanism of abuse. It's an area that causes concern so we're having an independent review to see what can be done. It could bring the three-day period back on the table – or something else."
The UK's Insolvency Service said the review will be launched in "late spring".
A spokesman for R3, Britain's insolvency profession's trade body, said: "We recognise the concerns from within the creditor community about the pre-pack process, particularly over connected party sales, and we hope this review will help to increase confidence and highlight the vital role pre-packs play in saving businesses and jobs."
R3 said that "key changes" could "boost transparency and confidence in the process".
"Creditors should be granted the option to appoint an independent liquidator. This would enable the sale to be properly assessed and allow for wrongdoing by any party to be tackled." (© Daily Telegraph, London)