Desnos slates pre-packs

Suppliers have nothing to win and everything to lose in pre-packaged
administrations the head of the UK’s biggest trade credit insurer has warned.

Fabrice Desnos the chief executive of Euler Hermes UK became the latest
senior figure to slate the controversial process.

After introducing the pre-pack code of ethics to ensure best practice at the
beginning of the year, insolvency lawmakers have stood their ground on any
further rules.

But will his influence be enough to effect some change? Desnos spearheads the
UK’s largest company providing cover against the threat of customers
short-changing suppliers because they have gone bust, so his criticism of the
pre-pack process should carry some weight.

The Euler Hermes chief said reducing or withdrawing trade credit insurance
was a precautionary measure to flag up the riskiness of continued trading with a
company which was locked in talks with its lenders after breaking banking
covenants for example.

“It’s a duty of care you have to our clients you have to tell them to halt
trading until these issues have been resolved. But you’ve got to look at the
shareholders and the directors,” Desnos said.

“There has been an extraordinary increase in the number of pre-pack
administrations. Sometimes it’s the right thing to do sometimes it can be
abused. That is one of the things we need to be very wary about.

“It is something that is very difficult to second guess, particularly
directors deciding the best way forward for the business is effectively to not
pay its suppliers and start afresh with the same business or part of that
business.

“We insure unsecured suppliers and they never have any security when a
company goes insolvent.

“When a company is placed into administration through pre-pack or traditional
administration processes [suppliers] have nothing at all to win – nothing. They
have everything to lose.’

He is not alone in his dislike of the process. MPs, unions and suppliers and
the insurance industry have all hit out at the fast track administration
process, which secures a buyer in secret before the collapse is announced.

This is done to prevent the price of the company tanking on the news of the
collapse, and also to avoid the need to secure funding to keep the business
trading while covering rents and VAT bills.

The ABI, the influential trade body for the insurance industry has also
slammed pre-packs.

“Our main concern with pre-pack administrations is that often suppliers are
trading blindly with a company that knows it’s about to enter into a pre-pack
right up until when the deal is done,” the ABI said earlier this month.

Suppliers with trade credit insurance will be covered for their losses, but
the lack of transparency leaves insurers facing an unlevel playing field and
uninsured suppliers out in the cold.”

However, the IP community says it is a vital weapon in an administrators’
arsenal and preserves jobs which may otherwise be open to sweeping redundancies.

Desnos strenously denied any suggestion suppliers were put under greater
pressure when credit insurance was removed.

“Can you imagine for a second that we want the very event we insure against
to happen?”, Desnos said.

“If I was a car insurer would I deliberately take a car that I’m insuring
into a wall?

“Transparency is key. We’re there to prevent our clients from going down
themselves.”