Call to reform pre-packs to save more businesses

Rules governing pre-pack administrations ­ which saw retail group Mosaic
broken-up and Whittard’s sold ­ must be reformed to save more businesses,
according to one of the industry’s senior figures.

Institute for Turnaround CEO Christine Elliot is concerned that the often
accelerated nature of pre-pack deals – where a sale of a struggling business is
agreed prior to it entering administration – means that companies are not
restructured effectively and can slip back into insolvency.

New regulation SIP 16 was recently introduced to review a pre-pack process
after a sale is completed, and Elliott wants this to be undertaken before
businesses are lined up for a second time in a pre-pack sale.

‘The main problem is that [SIP 16] operates after the event. It should
encompass the power to review prior to a second deal. Businesses that enter a
pre-pack are much more vulnerable to going into pre-pack again ­ it’s multiple
pre-pack syndrome,’ said Elliott.

In an article in today’s Accountancy Age, Elliott also raised
concerns about the recent failure of the Stylo CVA and the prevalence of
pre-packs to rescue collapsed retailers.

‘Regrettably, even where pre-packs operate in accordance with a protocol and
are transparently managed, it by no means guarantees that the business will
thrive,’
Elliot added.