Pre-pack set to face challenges

Pre-pack set to face challenges

The rise of the pre-packaged administration – where an almost immediate sale of a struggling business is organised between business recovery experts – has proved controversial

Creditors, which normally hold great sway over a struggling business, argue
that the pre-pack process in effect cuts them out of the loop. The sale can also
involve a management buyout, which gives control of the business back to those
who ran the troubled company in the first place.

Others argue that the hurried nature of the pre-pack does not make the best
deal for creditors, and questions linger over whether the sale options had been
properly explored.

If it’s so controversial, why has the profession not found itself bogged down
under the weight of case law, brought about by unhappy creditors?

Begbies senior partner Nick Hood says that creditors are loathe to ‘throw
good money after bad’ and feel it’s not worth going to the courts.

Despite this, Hood does expect a court challenge sooner rather than later.
‘It’s pure chance that there hasn’t been anything yet, but a challenge means
putting money where your mouth is.’

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