Pre-pack Slurs Continue Unabated

Despite the Insolvency Service giving pre-pack administrations a clean bill of health, it would appear that certain government departments are still not satisfied.   After all this time, many remain convinced that the process is still being utilised as a quick-fix solution which disadvantages unsecured creditors.

Commenting, Gerald Irwin of Sutton Coldfield based Licensed Insolvency Practitioners and Business Advisers, Irwin Insolvency says, “It is all a bit ironic really as the government’s Enterprise Act 2002 actually opened the door to Pre-Pack Administrations.  Before the Act came into force, pre-packs were normally initiated by banks through appointing receivers under their security.  However, the Administration procedure was simplified allowing inexpensive and quick out of court appointments by company directors, shareholders and certain secured creditors.  This allowed additional parties to institute a procedure which could be used for Pre-packs.  Against this background, The Insolvency Service has enforced powers to clamp down on directors who misuse the process.

The real concern for creditors should be the value of realisations.  Many within the insolvency profession are wholly convinced that pre-packs often maximise realisations.  A touch more transparency should encourage Insolvency Practitioners to take additional care but communications will still take place after the sale.

“The extent of Insolvency Practitioners duties in structuring a sale remain unclear.  Perhaps it is now time for some thought to be given to codifying these similar to that of directors’ duties undertaken with the Companies Act 2006.  The most important thing is encouraging best practice,” added Mr. Irwin.