Pouring water on phoenix companies?

WHEN ED DAVEY, consumer affairs minister, recently announced new proposals to improve the transparency of pre-pack administrations, he must have known that satisfying all interested parties would be a tough call.

A plan to give the outside world three days’ notice that a company was destined for a pre-pack sale has its obvious advantages to unsecured creditors…or does it?

Yes, under the new proposals creditors would be able to apply to the courts to block a sale, they could decide to stop any more supplies from being dispatched, or could aggressively pursue retention of title rights on goods already delivered.

However, all of these could mean that the company fast approaching administration would be severely devalued, to the point where the administrator would have to let the business die. In this type of situation, how would that help unsecured suppliers? They would still be staring at bad debts.

Pre-packs, and their subsequent spawning of “phoenix companies”, have been widely attacked by the credit management profession ever since they were first mooted. I don’t think the credit industry has something against the whole concept per se; what it wants to see stopped is the pre-pack sale back to incompetent or untrustworthy directors.

Some honest hard-working small business people get into difficulty through a bit of bad luck, and even tough old trade creditors have empathy in these situations.
Perhaps an administrator should have to make a professional assessment of the director’s business acumen before contemplating a pre-pack sale back to him? Would this be possible?

Unfortunately, too many pre packs become repeat business casualties within a year or two. That’s why, in my opinion, there are some directors out there that shouldn’t be given such easy second chances to screw up.

Photo by Eric Miller/World Bank

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