Insolvency practitioners are giving their blessing to the pre-pack rule book which is set to hit the profession soon.

A buyer being found for the business before it enters administration is the hallmark of a pre-pack, but the practice is fiercely disliked by some.

‘I think it’s needed,’ said one IP. ‘There is a large scale misunderstanding amongst creditors and unions. The rulebook will help them be sure pre-packs are being dealt with in an orderly and proper manner.’

The IP knocked back the idea that there would have been less pre-packs in the past if the rule book had been introduced earlier.

‘A pre pack is the logical result of the technical demands of the Enterprise Act and market conditions. Two to three years ago we were in the middle of very benign conditions.

‘Back then, in order to get the best value for some companies, pre-packs avoided the damage done to the sale price by a business entering into administration. Now, you have severe difficulty finding buyers and finding the funds to keep the company trading.’

Unlike Chapter 11 administrations in the US, the Enterprise Act did not provide for super priority funding, where a creditor willing to dig deep and fund the company during restructuring efforts goes to the front of the line when the IPs are returning cash, so the attractions of pre-packs are clear to see.

They also help IPs avoid expenses such as rent and rates for commercial property in addition to the prospect of expensive marketing and lengthy sales processes.

In many cases, HM Revenue & Customs is the major creditor of a failing business and the taxman has baulked at companies going down the pre-pack route.

Only in September of this year a High Court judge shot down HMRC moves to veto a pre-pack. The judge rejected a claim by HMRC against the sale of a firm of solicitors to allow an immediate sale of the business to another firm of solicitors.

‘My own view of pre-packs is that they are extremely desirable,’ said one leading IP with 20 years experience of administrations.

‘Sometimes you simply don’t have the luxury of keeping the company trading while considering bids.’