Pre-pack code given the nod by 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

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

‘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.’

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