Are Pre-Packs Controversial?

Are Pre-Packs Controversial?

Pre Pack Administrations are often considered a controversial procedure given that often the business and assets of the insolvent company are sold without open marketing being done which therefore means that creditors are not consulted until after a sale is complete and the Administrator is appointed.  However what is often miss-understood by all parties is that the amounts received for the sale are considered the best possible outcome for the creditors and therefore the return to creditors is better than in other processes.

Far too often we see news stories about the failings of pre-packs when more should be done to report the successes of the process.

A general miss-understanding of pre-packs was highlighted recently when an article was written by Graham Ruddick of the Telegraph on 1st June 2013 about the Pre Pack Administration of Dreams…

…He reported that

Pre-pack administrations are contentious because they allow companies to walk away from debts and contractual agreements, such as leases, through the creation of a new company.” 

…When in fact, the reality of insolvency law is that most insolvency processes allow companies to walk away from their debts, the contentious part of the process used by Sun European Partners for Dreams was that the sale negotiations took place shortly before the Administrator’s appointment then completed shortly thereafter (like in all Pre-Packs).

 

Dreams Pre-Pack – A success or failure?

My view is that the Pre Pack Administration of dreams should be reported as a real success for the industry as a massive 75% of the debts were repaid as a result of the pre-packaged sale having been completed not to mention the 1650 jobs saved in the process.  It is not the Insolvency Practitioner’s fault that Dreams owed creditors the amount that they did, nor is it his fault that some remained unpaid which included Leases (which are often contingent anyway), customer deposits, banks and HMRC).  Had the company been allowed to be placed into Liquidation then the likelihood would be that more stores would have been closed and forced sale valuations would have been received rather than open market or going concern sale amounts.  Therefore do not let bad reporting sway your decision on the pre pack process.

For more details about Pre-Pack Administrations, go to our Pre-Packs page.

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