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Making the most of the assets
Page 20
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Pre-packaged administrations have come to the fore following the events at Bulmers Logistics. But what is a 'pre-pack', and why are hauliers who are facing insolvency looking at it as an option?
Words: Christopher Watton
ON 21 JANUARY, the Teesside-based container operator Bulmers Logistics went into administration, or, to be more precise, a pre-packaged administration.
On the same day, the management team from Bulmers Logistics, lead by managing director Jonathan Bulmer, purchased the trade and assets of the firm, which included an agreed asset and stock list of the company, in a management buyout (MBO).
Thus Bulmers Transport Limited was formed, operating with a fleet of 144 trucks and 204 trailers. Staff were able to transfer to the new company under the TUPE (Transfer of Undertakings. Protection of Employment) rules.
One of many options
Andrew Gosnay, partner at law firm Pannone, who advised Bulmers on the MBO, says that the current recession is making times tough for all operators, as well as financiers and other suppliers.
"Struggling businesses, whether they are operators or suppliers, must look at all the options available to them and take the best specialist legal and other advice they can afford to ensure they do not incur unnecessary personal liability, face disqualification proceedings, or other legal and criminal sanctions.
"Those who need 0-licences to earn a living have to be especially careful, their conduct could have implications not just now hut in the future.
Gosnay warns that there are likely to be more pre-packaged administrations in the future. He says: "I'm advising a number of operators and their suppliers facing the same issues, but with varying degrees of severity. Not all will survive, but by taking steps early, businesses and jobs could be saved. Pre-pack administrations are just one of a variety of options that should be considered."
Pre-packs reviewed
The Business and Enterprise Committee held a meeting at the House of Commons last month to ensure that the laws governing and regulating pre-packaged administrations, which are more commonly known as a 'pre-pack', are covered carefully.
I3eing quizzed by politicians were the Insolvency Service, in the form of Stephen Speed, inspector general and agency chief executive, and Graham Home, deputy chief executive.
Given the increasing number of companies going into administration in the UK, the Insolvency Service is keen to address concerns that a firm can emerge out of administration back into the hands of their management without the inconvenience of unsecured debts.
As a result, since the start of the year, the Insolvency Service has required companies to tell lenders why they are opting for a pre-pack, who will be buying assets, and what price was paid.
Horne said at the Committee hearing that the Insolvency Service would use new procedures, which are known as Statement of Insolvency Practice (SIP) 16, to police pre-packs.
Horne said at the meeting: "We're going to be proactively policing SIP 16 statements to see administrators have behaved in the right way and that directors have behaved correctly."
Saving jobs
But what does a 'pre-pack' entail? According to R3, the Association of Business Recovery Professionals, they are not a new mechanism for recovering a failing firm, but they have increased in volume after the introduction of the Enterprise Act in 2002.
Even in its online guide, it says that pre-packs are often viewed with some suspicion since creditors are informed after the pre-pack is completed.
However, R3's president Nick O'Reilly says: "Pre-packs are not controversial when applied to the type of businesses where the principal assets are the employees or intellectual property, as in all service businesses.
—trading on a service business is virtually impossible. If you tell the employees to hang in there for another six months or so, they will immediately get on the phone to find alternative employment which will leave the firm with no assets," he adds.
Insolvency practitioners also argue that a pre-pack is a useful tool because it keeps a business trading and saves jobs — in Bulmers' case some 200, •
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