What’s different this time?

For some reason, they keep being reported in the media as being some sort of “magic bullet” solution to businesses in financial difficulties. 

It’s still a specialist procedure that has to be conducted by an experienced and qualified insolvency practitioner and still requires the approval of creditors before a business and its assets can be sold quickly or otherwise as a going concern. 

We see at least one story a week about a business going through the procedure. This week it’s London-based, food-to-go providers Abokado to be the focus 

There’s no quick-fix solution. In the case of Abokado, they have been bought out in a pre-pack administration this week relatively quickly but 150 staff have lost their positions and the new owners still don’t know when any of the 19 branches will reopen as their main client base are lunching office workers. 

Regardless of the assets they’ve purchased, they will also have to underwrite any expenses with no income coming in for the immediate future.  

Pre-pack administrations are also in the news because the government has announced plans to bring forward new legislation to force mandatory independent scrutiny of any agreements where connected parties – people who already have some connection to the business such as existing directors or shareholders – are involved in the purchase. 

There’s already a body that can scrutinise such deals – the pre-pack pool – but referral is completely voluntary and the government has decided that in an attempt to improve confidence and transparency for creditors that their interests are being protected that an element of essential oversight is required. 

Lord Callanan, Minister for Climate Change and Corporate Responsibility said: “This government is committed to creating a transparent and fair insolvency framework, and helping distressed businesses explore all options to get themselves out of trouble. 

“Pre-pack sales are a really useful tool to help save troubled, but viable, businesses and play a critical role in helping to protect our economy and preserve livelihoods. 

“As the UK continues to tackle Covid-19 it’s more important now than ever that people can take confidence in the insolvency process. Connected parties such as existing directors and shareholders who know the company well can be ideal buyers. 

“But in the rush to secure a sale, creditors’ needs should not be forgotten. The new law we are introducing will ensure such deals are properly scrutinized, to help balance the interests of everyone involved.”

While any attempt to promote and protect the robust insolvency regime in the UK should be welcomed, attempts to close loopholes should not be at the expense of creating new ones elsewhere. 

A good solution?

R3, the trade association for insolvency professionals, believes they might just have found one. 

In the small print of the proposed new regulations is a small but significant mention that deals could be reviewed by an “evaluator” if any of the parties to the deal believe that they have the requisite knowledge and experience. 

R3 President Colin Haig identifies that this means that “effectively anyone will be allowed to provide an independent opinion on a connected party pre-pack sale, which risks abuse of the system that undermines the entire rationale of these reforms.”

The proposals show that a connected party purchasing a business out of administration “may obtain more than one report” from an evaluator. This could open the process to a level of “opinion shopping” where well-financed buyers would be able to find various opinions that would all completely coincide with and support the validity of their case. 

Insolvency practitioners like us have to keep up to date with all the legal and professional developments within the industry including any new regulations that could benefit clients and businesses seeking our advice on what the best course of action to take is. 

A pre-pack administration can be the right solution for a company in one scenario as a CVA, administration or liquidation can be the right choice in another. 

No matter what obstacles your business is facing right now, we’ll have worked with a business in the same or similar position and can advise you on the next steps to take regardless of how the rules may change in the future. 

Taking the right action at the right time is always the best solution and the first stage of a successful solution is always to take advice. 

Contact us today and one of our expert advisors will arrange a free initial consultation so we can understand what your situation is and we can explain what your immediate options are. 

You might be surprised by how much room you have to maneuver but the longer you leave it, the less room and time you’ll have to set your business back straight.