BusinessBusiness RecoveryPre-packs boosted by High Court decision

Pre-packs boosted by High Court decision

Quickie insolvencies have survived an attack by the taxman, after a High Court case threw out a challenge to so-called ‘pre-packs’ from HMRC

The case dealt with a company named DKLL Solicitors, which
HM Revenue & Customs
wanted to wind up 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. Instead the
administrators had lined up a sale of the business worth £400,000 prior to
administration in a ‘pre-packaged’ deal.

HMRC argued that it should be allowed to block the sale where the courts knew
that the taxman was the major creditor and it opposed the pre-pack.

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.

Halliwells partner in corporate recovery Carolyn Swain said the case had
wider implications beyond pre-packs, as the court could now be used as a
backstop if the majority creditor didn’t like the insolvency practitioners’
plans.

‘Even if the majority creditor is unhappy the court can overtake them if
happy with [the practitioners’ plans],’ said Swain.

‘Size doesn’t matter,’ said Simon Allport, partner in corporate restructuring
at Ernst & Young. ‘It’s interesting that a majority creditor doesn’t
necessarily have the right to dominate.’

He was especially pleased that the judge backed the pre-pack plan over HMRC’s
attempt to liquidate, backing pre-packs, and also that that decision was partly
based on the practitioners’ expertise in handling professional services
insolvencies.

‘It gives pre-packs further validity. Experience was also a factor in the
decision, which is refreshing to see,’ he said.

Read the judgment at www.bailii.org

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