The value of pre-pack deals being referred for initial assessment is much higher than initially anticipated.
Data shared with City A.M. by the Pre-Pack Pool, which was established in May 2015 to review and greenlight pre-pack administration proposals, shows that the average value of deals referred to it so far is around to £4.2m.
By comparison, the 2014 report, written by Teresa Graham and commissioned by then-business secretary Vince Cable, which recommended the setup of the pool pegged the value of most pre-pack agreements at £100,000.
However, of the 17 deals of which the sterling value has been disclosed, only six failed to break into the six-figure mark. At the other end of the scale, the highest valued deal came in at £65.3m.
Stuart Hopewell, one director of the Pre-Pack Pool, said:
The numbers indicate that, while initial take up is slow, the type of pre-pack being referred to the pool is that of higher value – better quality deals. Teresa Graham's report, based on 2010 data, indicated that most pre-packs were valued at or around the £100,000 region. The majority of referrals to the pre-pack pool are for considerably higher value. Given that the process is principally in place to reassure creditors, the system is meeting its objective, which is highlighted by the larger deals coming to the pool.
It is understood that the number of deals referred to the Pre-Pack Pool have been lower than anticipated. However, this is partly because the setup of the Pool has coincided with a drop in insolvency more generally.
For example, the Insolvency Service found that 3,694 companies went into insolvency during the first quarter of 2016. Although this represents the first time the number of insolvencies had increased quarter-on-quarter since the start of 2014, this is still 3.6 per cent lower than the first quarter of 2015.
The Pre-Pack Pool is designed to give creditors an independent opinion of the potential deal, but it does not attempt to query the work of the administrators or give an opinion on how likelihood of the success of the business once the deal has been completed.
Referral to the Pre-Pack Pool happens on a voluntary basis and there is no requirement for such a deal to be referred.