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Pre-pack administrations fail to take into account any unsecured creditors
Page 18
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IN LAST WEEK'S CM, John Williams, managing director of Maritime Transport, talked about pre-packaged administrations (Prepack administration may not be the answer to all your money worries', CM 2 April). In response to that, I would like to call for more Parliamentary intervention.
Ask what a pre-pack is, and people would probably guess that it's to be found in the freezer in your local supermarket.
But to those like me, who have been at the wrong end of this government-inspired change to the insolvency regulations, they will know it to be something very different, and can often be very costly indeed.
Pre-pack is the latest term for insolvency. As has been seen so often with this government, its well-meaning, badly thought-out efforts have resulted in more and more half-baked legislation such as this — and creditors are starting to get more infuriated when they learn to their cost just what a pre-pack is about!
Peter Lull: MR the Conservative politician who heads the all-party business and enterprise select committee, is looking into prepacks, and he has already received a paper from me on the subject. This., he says, has put a different light on what he has seen from the insolvency profession on the merits of pre-packs.
Financial solutions
Originally, those professionals working in insolvency sought an easy and fast resolution to the sale of ongoing businesses that were in trouble, and this was before the current recession.
It pitched the idea to the government on the grounds that it would save jobs, hut the politicians obviously didn't think too much about the poor old unsecured creditors, when often the same directors decided to walk away from their creditors. hire their own licensed insolvency practitioner. and buy back the assets of their company in an overnight deal.
However, the owner-operators of, say, a transport company realise that they will not be able to pay their bills as they become due, and they talk to their accountant, who knowing the business puts them in touch with an insolvency practitioner they know.
The practitioner establishes that the shareholders (who are more often the operating directors, too) want to buy the business back.
A deal is sorted out with the insolvency practitioner. They then sell them the assets of the business that they want to take, and all of this to the world thereafter is carried out overnight.
The other side
Of course, there is another side to it. What about the unsuspecting, unsecured creditors?
As an unsecured creditor in a full-blown liquidation, you would usually learn about a creditors' meeting after the event. But you could get a list of creditors wanting to know where their money had gone perhaps. And if you were really fast on your feet, you might even buy the odd truck or trailer to make you feel a bit better (as I have done over the years).
In the wonderful world of prepacks, they've all gone, every item of worth is gone, even the diesel in the tank, and the garage and office equipment, too. In pre-packs, every mortal thing can go in one clean accounting sweep, that you know nothing about until it's all in their electronic paperless offices and sold! Any trucks or trailers standing too high in value are, of course, sent back to the finance or leasing company. •