Pre pack administration review: the Moorfields viewpoint

It was announced recently that the Business Secretary Vince Cable has launched an official review of pre pack administration processes. Is the review necessary? And what do business leaders and their accountants need to know about the pre-pack administration process? Phil Smith, Partner at Moorfields Corporate Recovery, offers his views.


There have been many high profile sales of struggling businesses under pre-packs this year alone. Internacionale is the latest to be sold as an ongoing concern. It was sold virtually as soon as administrators were appointed. Before that in June there was a case involving Metalrax Housewares Limited, the engineering company, which was sold to Oneida International Limited, a subsidiary of Everyware Global Inc, saving 120 jobs in the process via a pre pack administration. This is similar to numerous successful pre-pack sales of businesses we have undertaken at Moorfields over the years.


The review launched by the Business Secretary will reportedly concentrate on issues many creditors face in recouping owed monies after a business undertakes a pre pack administration. The government is mindful that in certain instances there may be an opportunity for ‘rogue traders’ to run up debts and then move on to continue to trade under a new business name.


This is certainly something that the government is right to want to review and all good insolvency practitioners would welcome such a move. It is worth noting though that pre pack administration is just one of the tools available to insolvency practitioners. It should only ever be recommended to businesses if it is the best option available to them.


The primary objective of an administrator is to rescue a business. At Moorfields we only use pre-pack administration sales to complete quickly, to secure jobs and to ensure ongoing services for customers. In this regard pre-pack administration is useful at assisting administrators in rescuing a company.


This is particularly true in service based businesses, where reputation is everything, or businesses where a continuity of business is key; announcing a company is in distress in public can leave administrators with a more difficult task in saving that business.


It is also important to bear in mind that pre pack administration can be the best tool for saving employee jobs at a business and securing the positions of all employees for the future. It is better to save a business than wind one up, losing jobs in the process. 


Administrators that are involved in business turnaround have a duty to maximise their return to the creditors that have appointed them. But they need to be satisfied that a pre-packaged sale represents the best, or indeed only, deal available to them. In cases where it is not possible to fund a trading administration or the business will effectively disappear upon appointment a pre pack sale will be the only way of preserving value for the benefit of the creditors.


There is no one-size-fits-all solution to company administration and while a pre pack is a useful tool, it is only ever one consideration that insolvency practitioners such as ourselves rely on. 


By Phil Smith


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