Pre-packs: The good, the bad and the alternative

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Pre-pack administrations have been more widely used in the last few years following the financial crisis, reports Keith Steven managing director of KSA Group.

High profile cases like Blacks Leisure, La Senza, DTZ, Bon Marche, and Alexon have meant there has been a spotlight on such deals where the assets of the business are sold to a third party or newco set up by management

In a pre-pack the deal is worked out before the application to court for the administration order. All this happens in one movement and in the past, unsecured creditors, such as trade suppliers, may not even be aware that the business is in difficulty. 

This sort of deal can make the people who lose out, suspicious that they have been ‘stitched up’. The deals that attract the biggest criticism are those where the new company that has bought up the business, is closely associated with the former owners.    


The good

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03rd Feb 2012 13:00


There also too many cases where clever changes of business name creep into this whereby by moving the business name & assets around the business gives the appearance of continuity whilst the debts are still in the old re-named business.

The legislation around all of this needs re-examination.

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03rd Feb 2012 13:22

Thumbs up for CVA

I recently started working with a client who owed a sizeable amount to HMRC from previous years but was currently trading profitably and generating positive cashflow. Despite that HMRC seemed intent on losing everything by forcing a liquidation.

We contacted an IP to dscuss a CVA, and subsequently appointed them to prepare the proposal. The CVA was approved last week, all the pressure from the historical problems is taken off the business except of course to meet or beat the obligations under the CVA, and the creditors will end up with 100% payout instead of probably 5%.

A welcome benefit to me of course is that I still have a client!


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03rd Feb 2012 14:11

In Scotland, the main topic of discussion in the media for some months now has been that a high profile football team is planning a pre pack if HMRC's case against it succeeds and it becomes insolvent.  Should that happen then the subject may well get national media exposure and perhaps people outside the accountancy profession will start to consider the process in a lot more detail.  That may make life a bit more difficult for some IPs.

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03rd Feb 2012 17:21


Whilst pre-packs may be legal and very convenient for Directors and IP's there is a significant moral dilemna here.  Pre-packs may protect some of the jobs in the failing organisation but what about the creditors and their employees whose businesses and jobs are consequently put at risk?   I know of one franchised organisation that sanctioned pre-packs for twelve of its franchisees over a period of two years.  Each franchisee entered into administration one day and rose phoenix-like from the ashes the next day with the original Director(s) still in place and with a brand new franchise agreement granted by their franchisor.  It became an easy and very popular  "ditch the debt" option within this particular franchise network.  In every case the biggest creditor by a long way was HMRC and in many cases the franchisees had been deliberately withholding Tax and NII payments in anticipation of the pre-pack taking place.  Also, the IP's must have known that this was happening .   There may not be too many tears shed for HMRC as a creditor but actually this is yours and my money that is being lost....! 

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04th Feb 2012 15:57


We used a CVA that was prepared by KSA.  A few months on it is very clear that this was by far the best option available to us.


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05th Feb 2012 21:05

Thumbs up for CVA's

I advised a business to enter a CVA. The directors were initially reluctant but I managed to convince them it was the best option.

Eighteen months on the business is performing well and the payment proposal of 47p in the £ is being kept to.

Great news for creditors, as most of them are still working for the client and getting paid on time!


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By Kelvins
08th Mar 2013 13:32

Pre pack insolvency
The major advantage of pre pack insolvency is that it is helpful in maintaining the continuity of a business and getting rid of the unwanted business contracts and overcome the financial crisis in an easier manner.

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