Don't pre-pack me

March 27 - I can't be the only person who gets as annoyed as heck by pre-pack liquidations.

I mentioned last week that one of our customers looked like it might go. Well, it has, of course. And then next day there it is back up and running again asking for credit under another name.

So we lose a debt and are then asked to fund the new start up.

Well, actually, we won't. You can rip us off once, but these companies seem to have a habit of going down again within two years now, or so it seems to me. So my answer is 'no'. The total loss does not justify the margin in the meantime. So they pay on an upfront quarterly contract this time or they can go elsewhere. It's up to them. But they won't have long to decide because the kit is ours in this case and I'll go and get it if they don't agree terms. That's my right. And it might just help cover our losses to get it back for reconditioning.

Comments
ryedaleman's picture

Dont pre pack me

ryedaleman | | Permalink

Hope you feel better for that

You are CEO and have the right to conduct business on your own terms but it may be that New Co will be better run better managed and a better prospect in the long run and you could get back all you lost and more besides

 

Just a thought

I'm with CEO on this one

My New Name | | Permalink

In fact I'd put the price up to recover the loss too. If you can afford to lose the customer why not?

When I had bad debt insurance and a customer went bump the insurer exercised their right under the policy to claw the loss back over future business. So I paid a premium, got a lump sum which I then gradually paid back. I put the price up to the new, pre-packed company so I retrieved the original loss, refunded the insurer and maintained ongoing margin. We too had a strong position and could have afforded to lose the customer.

The ultimate loser was the insurer 'cos I didn't renew with them. Their policy was too much Heads I win, Tails you lose....

@ ryedaleman

alistair_king | | Permalink

It will be managed by the same people who will likely do the same thing over again, including repeating any errors. Why would you ever think it would be better managed and a better prospect?

ryedaleman's picture

Another Chance

ryedaleman | | Permalink

alistair_king wrote:

It will be managed by the same people who will likely do the same thing over again, including repeating any errors. Why would you ever think it would be better managed and a better prospect?

 

So nobody ever learns by the mistakes they have made

Look into the profile of most of the so called successful business people and a large % did not get it right 1st time round or 2nd / 3rd even

It is very easy to take the moral high ground

 

Just another thought

I'm in agreement with Alistair on this

steve01257 | | Permalink

From my experiences with similar situations the only lessons learned are that the ongoing commercial issues of going bust are not as great as was thought and there are always suppliers who have just lost money in the first company who will then extend credit to the newco in the vain hope that that the loss can be recovered by way of extra margin.

Sorry to disagree with you ryedaleman but the easy thing to do is to give credit to the newco, it is much harder to "take the moral high ground" and refuse to help fund the new business.

We are normally happy to supply goods to a newco in these situations but not on credit terms. How long this situation continues for depends on our judgement of the particular circumstances of the failure.

 

ShirleyM's picture

It isn't unreasonable to refuse credit

ShirleyM | | Permalink

Very few new limited companies can obtain credit, with or without a chequered history, and it is good business sense to refuse credit unless a personal guarantee is given by directors who have the assets to back it up.

Hearts and minds

Siilycountry | | Permalink

Under these circumstances I don't see why the CEO should advance any credit. Sure, people can learn from their mistakes, but in the CEO's position I wouldn't want the customer learning with my money. His responsibility is to protect the employees and shareholders in his company, not to further the education of his customer's management.

What's more, he's in a stronger position than most as the customer depends on the kit which belongs to the CEO's company. Always bear in mind the slogan (variously attributed to LBJ, Chuck Colson among others) - "when you've got them by the balls, their hearts and minds will surely follow".

 

ksagroup's picture

Pre pack administration

ksagroup | | Permalink

Pre pack liquidation is a bit of a misnomer.  I think what you are refering to is the process of phoenix companies.  A Pre pack administration is when a business assets and goodwill are sold to a new owner often but not always in some way connected to the previous owner.   The "oldco", or shell, is then put into administration and then eventually liquidated.  It all happens in one move and is mainly used where business continuation is desirable to acheive a better result for creditors and perhaps a creditor looks like it can stop the company trading to the detriment of the others. 

A phoenix is where the company is liquidated and shut down.  The previous owners then start a new company "out of the ashes of the old" and start trading again.

Like so many things in business both processes can be used cynically. 

Not always a bad thing

Klandrews | | Permalink

Sometimes it isn't a bad thing - although I agree that this case sounds more like Phoenix-ing than a prepack.

I have sold a business through a pre-pack and the buyers were so keen to preserve the existing business that they took on the creditors and made sure that they all got paid.  That business, which was really struggling with excessive debt as a result of a deal done at the peak of the market, has now gone from strength to strength under new ownership, thus preserving lots of jobs.  It wasn't badly managed, it just needed investment and not to have the spectre of huge amounts of debt hanging over it.

I have come across those who Phoenix their businesses - one week you get an invoice from one company, the next it's a different business with a different co number - and that I don't like.  In this case I'm with the CEO.  Payment upfront or go away. 

its not ethical but cash is king

stephen_walton | | Permalink

I know some people will wince at my stance but life is not fair and cash is king

Go along with the newco order until they need it and advise it is proforma with cleared funds (not cheque)

Collect the money and then tell them that you have used this to pay the old company debt and then tell them they have to pay again for the new company - some do some dont - not bothered they wont get credit off me

They will usually scream and shout about this but very rarely do they actually resort to litigation and if so you can usually counter claim a reasonable proportion for work done before delivery and management time etc.

Like I said not ethical but you avoid the bad debt!!!

 

 

 

 

 

 

 

41115BARRI's picture

Its not ethical but cash is king ... but is it FRAUD?

41115BARRI | | Permalink

I think that if Stephen Walton did what he said, he should be prosecuted, either for fraud, theft, obtaining money by deception or some other lesser known criminal offence, or preferably all of them! Whilst everyone has the right to decide who they wish to trade with, and on what terms, and there have been several options set out above, this course of action is at least as bad as fraudulent trading, which is a hell of a lot more serious than a simple business failure, even if that included an element of wrongful trading.

Oh dear I have upset a Pre Pack Vulture

stephen_walton | | Permalink

The only winners from a prepack are the management and the IP who organised the fiasco that is a prepack

Face reality they are hated by most hard working business who see them as a crooks charter to walk away from their obligations and commercial contracts.

So what if I twist the rules we both get funds but I may queue jump and you can legally charge creditors 20p to photocopy a sheet of paper (who is robbing  who here)

And can you tell me the last time the pescribed element ever got paid out in a large administration/prepack - NEVER as the IP dances and applies that it will take too long to do - well you wonder why creditors get so frustrated with this joke that is in place now that allows prepacks

You claim on your website that your clients would all recommend you - that may be true but how many of your clients suppliers will feel that you acted in their best interest ??

I have had IP's call the police because I legally entered premises (though an open fire door) to take back my own goods before the IP sold them and kept the funds and fabricated stories that i broke in and swore at them - the police didnt care when they attended and left me to carry on taking back my own goods, and do you honestly think a fraud squad would have the resource to dedicate in a commercial case - get real they dont even review half of the long firm frauds that are currently running.

Me getting even is justice in my book (you may view it as wrong)  i dont fraud people and I pay my bills on time so

 

 

 

 

 

 

cbbcbb's picture

Aren't so many pre-packs and Phoenix deals moral frauds anyway?

cbbcbb | | Permalink

I have long held the view that these deals are a charter for moral fraud and the root of many of our overheads in high interest rates, bad debt insurance, knock-on redundancies and general grief. Further legislation to stop this is still needed.

How about the old disqualification of Directors (and relatives)  for 5 years in the newco?

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