New review to probe pre-pack administration

 
Marion Dakers
INSOLVENCY experts gave a lukewarm welcome to the government’s plan to review the controversial pre-pack administration process yesterday.

The independent review, the second of its kind in less than two years, will look at whether pre-packs are used properly to get the best deal for both the businesses and creditors.

Pre-packs typically agree the sale of a struggling company before administrators are formally appointed.

“We have definitely been here before. The problem is more about limited liability rather than the pre-pack process,” said Taylor Wessing restructuring and corporate recovery partner Neil Smyth.

He welcomed the review, but said pre-packs for retail companies can save more creditor money than a traditional administration, by putting the responsibility for trading on the new buyer.

Ernst & Young restructuring head Alan Hudson agreed that jobs can be preserved, pointing to the sale of Dreams last month, which resulted in 171 shops trading under a new owner.

“Without this the only alternative would have been to close down the business with associated loss of jobs and value for customers, as trading the business on in administration was not a feasible option,” he said.

But creditors have complained that short-notice sales leave them waiting for weeks to hear whether their money will be returned.

The Insolvency Service estimates that 25 per cent of all administrations are pre-packs, of which around 85 per cent are sold on to parties already linked to the company.