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Pre-pack administration may not be the answer to all your money worries

2nd April 2009, Page 17
2nd April 2009
Page 17
Page 17, 2nd April 2009 — Pre-pack administration may not be the answer to all your money worries
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Which of the following most accurately describes the problem?

THIS IS WRITTEN in response to your article regarding pre-pack administrations and their place in road transport (`Making the most of assets', CM 12 February).

Bulmers Logistics going into pre-pack administration and reemerging as 'Bulmers Transport' with the same management team is a good case in point.

While no one wishes to see the demise of any organisation, there are always reasons, and staff, suppliers, hinders and HMRC can lose out in the process. In the case of Bulmers, this was a firm some in the transport industry had been predicting could fail even before the current recession.

Bulmers was given further credit lines to over-expand its business, enabling it to acquire new trucks. Many of these are now emerging as distressed sales in CM, which may impair the value of the assets of other transport companies and undermine the price of used trucks across the marketplace.

Tougher regulations

The article suggests that pre-pack administration can be a good route to take for firms facing financial difficulties. However, there are concerns now being raised about the use of pre-packs.

As mentioned in the article, the government has unveiled much tougher rules for pre-packaged administrations to avoid misuse.

Pre-packs may be the right thing for a manufacturing company with an underlying sound business and management team that perhaps has a product or plant. It may also be good for a retailer or a restaurant chain, but in the case of a transport company, it may not he quite so clear cut.

It is hard to be sure that a slimmed-down transport firm will fare any better. The closure of two of its depots is unlikely to add up to a debt of £10m (`Bulmers Logistics folded with debts of £10m', CM 19 February).

The pre-pack arrangement has enabled the directors of Bulmers to recommence trading and may have prevented helping other operators in difficult market conditions.The pre-pack has given this business the chance to continue, placing it in a potentially more advantageous position to compete against others who themselves are working hard around financial difficulties. I'm sure that this isn't what pre-packaged administration is designed to do.

Difficult times

While there is a great deal of sympathy for innocent employees, and a desire to protect against job losses, past experience tells us that if the work genuinely exists, at sustainable rate levels, other companies will fill the void and the workforce will migrate to new service providers.

So, in reality, customers don't suffer, as Bulmers press statements seem to suggest.

But what about the survival of suppliers and their staff affected by the pre-pack? These companies are conveniently forgotten and left to hang out to dry,. When an insolvent company is wound up, at least creditors have some chance of being paid and their workforce holding on to their jobs, In a case like Bulmers, pre-pack appears to send out a message that potentially upsets rival operators who work exceptionally hard to create sustainable businesses.

I have no axe to grind with Bulmers Logistics, and my firm would not have directly benefited from its demise. However. I'm sure I'm not alone in saying that for Johnathan Bulmer to state he is leading a management buyout, and leaving behind £10m debts, offends those of us trying to keep our heads above water in very difficult times. Ir • Editor's nnte:Johnathan ftulmer has told CM that the £10m debt was a pre-agreed facility; including a £3m hire-purchase agreement with Yorkshire Bank that will be honoured by the new business; £6.2m of invoice finance debt, which he is fully committed to recovering as part of an agreement with administrator Deloifte; and a 000,000 overdraft facility that is expected to be repaid from the balance of recovered trading debt.

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