The current economic climate has seen a growth of businesses being “pre-packed”. And it is not without controversy. The whole issue of “pre-packing” can send blood pressures through the ceiling!
In simple terms, in a “Pre Pack” a buyer is lined up for a struggling business before it goes into administration or liquidation. It is invariably an option taken when all others have been exhausted. Recent high profile examples before Christmas included Whittards of Chelsea and The Officers Club and more recently the restaurants of Anthony Worral Thompson. A common situation is where a business is carrying historical debt which it can no longer afford to service. The core business may well be still viable and of course if peoples’ jobs are on the line it may be judged to be appropriate to pre-pack.
In many cases the owners of the existing business form a new company which in turn buys the assets of the old company from the Liquidator or Administrator, but leaves behind the debts. There are those who feel this is morally wrong but there are always differing viewpoints. The procedure is perfectly legal but has to be arranged within strict guidelines. Administrators are appointed to act by the Court.
As with many things in life there are winners and losers. Take the designer clothing chain USC which went into Administration at the end of last year. It had 58 outlets and under a “pre pack” sold 43 of those stores back to a new company owned by the original owners. Understandably, such situations can provoke anger among suppliers and landlords, many of whom can be left with unpaid bills. However, out of 1427 staff, 1127 kept their jobs. Tax-payers may question why they should foot the bill for unpaid tax bills often written-off in such arrangements but that too can be countered with the savings of not paying unemployment benefits. It is true to say that inevitably business owners themselves will have already lost significant amounts.
One criticism often raised is that the assets are sold at below market value (which reduces the amount available to pay creditors). In reality there is often a limited market for the assets. For example, I spoke to a watch repairer whose assets comprised £25000 worth (at cost) of stock; when I asked what the stock was, he told me it was 3 million cogs, springs and squiggly bits that make up a watch’s innards! He bought them back from the Liquidator ( -not Wilson Field in this case) for £3000, which was the best offer the Liquidator could raise.
Looking at the bigger picture, as a nation we can ill afford for the economy to contract any more than it is already doing. In such situations the Administrators (-all are Licensed Insolvency Practitioners) work under very strict rules to obtain the best position for creditors of the company.
Wilson Field employs a number of Licensed Insolvency Practitioners and other professionals. If you are running a business which has cash flow problems and are concerned about the future, please ring Wilson Field, see www.wilsonfield.co.uk or e-mail Phil -p.meekin@wilsonfield.co.uk , – and don’t delay as this can severely restrict the options available to you.