'Pre-pack' administrations boosted by court decision

A High Court has blocked the taxman's attempt to halt a sale of a business through a pre-pack administration, in what could be seen as a landmark case for the insolvency tool.

HMRC wanted to wind up DKLL Solicitors in an attempt to receive money owed through a liquidation.

However, administrators from BDO Stoy Hayward argued that a liquidation would see the taxman receive very little of the £1.7m owed to it.

The administrators had lined up a sale of the business prior to administration worth £400,000 in a 'pre-packaged' deal.

HM Revenue & Customs argued that where the courts knew that, as the major creditor, it opposed the pre-pack, the taxman should be allowed to block the sale.

Andrew Simmonds QC, sitting as judge, said that the administrators' plan seemed the best way to safeguard the solicitors' 50 jobs and would protect its clients' interests.

'I am particularly influenced by the fact that the proposed sale is also likely to result in the affairs of the partnership's clients being dealt with, with the minimum of disruption,' said Simmonds.

Insolvency trade body R3 stated that the ruling showed that administrations could be granted even when opposed by a major creditor, as the judge decided to give weight to the fact that the pre-pack was formed impartially from insolvency practitioners' expertise and experience.

Further reading:

'Quickie' insolvencies help preserve jobs