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05 Mar 2009
Rules governing pre-pack administrations which saw retail group Mosaic broken-up and Whittard’s sold must be reformed to save more businesses, according to one of the industry’s senior figures.
Institute for Turnaround CEO Christine Elliot is concerned that the often accelerated nature of pre-pack deals - where a sale of a struggling business is agreed prior to it entering administration - means that companies are not restructured effectively and can slip back into insolvency.
New regulation SIP 16 was recently introduced to review a pre-pack process after a sale is completed, and Elliott wants this to be undertaken before businesses are lined up for a second time in a pre-pack sale.
‘The main problem is that [SIP 16] operates after the event. It should encompass the power to review prior to a second deal. Businesses that enter a pre-pack are much more vulnerable to going into pre-pack again it’s multiple pre-pack syndrome,’ said Elliott.
In an article in today’s Accountancy Age, Elliott also raised concerns about the recent failure of the Stylo CVA and the prevalence of pre-packs to rescue collapsed retailers.
‘Regrettably, even where pre-packs operate in accordance with a protocol and
are transparently managed, it by no means guarantees that the business will
thrive,’
Elliot added.
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Visitor comments Add your comment
But....
what arrangements are there in place to make sure a non-prepack sale will thrive, and how is the vulnerability of non pre-pack sale to enter into administration a second time any different to a pre-pack one?
Fundamentally if the business model is worng or the economic climate is too benign, then pre-pack or not, what is the difference?
The only real difference could arise where it is a pre-pack to existing management who were responsible for the first collapse, this is where greater risk likes, but not all pre-packs are to existing management.
I don't see how encompassing the power to review the sale would potentially do anything other than increase costs, reduce returns to creditors and, depending on who carries out the review, destroy the goodwill value that a pre-pack attempts to preserve.
Posted by: Kevin Lucas, 05 Mar 2009 | 00:00