Could a new-found appetite for transparency among creditors be about to
transform the way pre-pack administrations are undertaken?
That’s the forecast from experts, who predict that more creditors could
engage a set of insolvency professionals to review the work of the practitioners
that have undertaken a pre-pack.
The views emerged following the case of Clydesdale Financial Services against
Clydesdale was a creditor of solicitors practice Alexander Samuel. The
solicitors got into financial difficulty and a pre-pack sale of the business’
work in progress to the tune of £1.9m was arranged by an insolvency
practitioner from Smailes.
Creditors of the solicitors, including Clydesdale, were only informed of the
pre-pack minutes before the deal was struck.
Clydesdale and two other creditors applied through the courts to name a
replacement administrator, who would conduct a review of the pre-pack.
The court removed the practitioner on the basis of the potential undervaluing
of the assets and the failure to consult creditors before the sale was agreed,
but emphasised there was not a stain on the integrity of the IP.
Although this course of action is nothing new, many experts believe it could
gain momentum as growing corporate collapses increasingly infuriate creditors.
The latest case “might encourage creditors to do this more often” a spokesman
for the Insolvency Service said.
“There is a drive towards scrutiny,” added Louise Brittain, partner in
reorganisation at Deloitte. She said creditors, particularly HMRC, were
challenging insolvency practitioner fees more often, which would result in these
types of cases becoming “less unusual”.
The introduction of SIP 16 guidance notes by the Insolvency Service earlier
this year, which meant IPs would have to compile reports on how they arranged
the sale of the company and valued it, had been welcomed by creditors.
However, PricewaterhouseCoopers’ turnaround directors panel believes more
still needs to be done to increase clarity in the process.
In its latest report, out this week, many feel the process of pre-packs is
“morally questionable” and that some cases are “unacceptable”.
The European Commission has requested all member states review their
insolvency practices by 2012. The Insolvency Service has already begun a
“suggestions” consultation on the profession which closes at the end of the
IN OUR VIEW
Pre-packs have a bad name but they are often the best way for creditors
to receive the highest returns on debt, and save jobs. If reviews increase and
show IPs in a better light, creditors will have more confidence in pre-packs and
question them less.
CUTTING THROUGH THE FROTH
Cobra Beer creditors lost £70m in the pre-pack sale of the company in May
this year. Molson Coors became majority shareholders after settling £14m in
debts. Founder and owner of Cobra beer, Karan Bilimoria, tried to sell the
company for £200m last year. Source: Press reports
There were 89 pre-packs in April 2009. 88% of jobs at firms rescued through
the use of pre-pack administrations were saved in April 2009 – compared to 60%
of jobs saved through the use of other types of administrations.
Why a pre-pack could be the best option, in order of highest response:
1 Sale needed to be fast.
2 Best chance of saving the workforce.
3 Only alternative to liquidation.
Source: R3 survey
Steve Absolom and Will Wright from KPMG Restructuring have been appointed joint administrators to City Motor Holdings and associated companies
Partners from Johnston Carmichael have been appointed as joint administrators to Axon Well Interventions Products UK
Begbies Traynor have been appointed administrators of William Anelay Ltd, York, one of Britain’s longest-established construction and heritage restoration companies
Smith & Williamson has been appointed administrators of charity 4Children