Pre-packs get a reprise from Government

This isn't the time to scrap pre-pack administrations, says Ed Davey. If not now, when?

by Emma Haslett
Last Updated: 06 Nov 2012
After much um-ing and ah-ing, the Government has decided against plans (much-vaunted in the run-up to the election) to scrap pre-pack administrations. You can understand why: pre-packs, where the sale of a business’ assets has already been agreed before it enters administration, essentially allowing the company to carry on, sans debts, have played a big role in ‘saving’ a lot of high profile brands over the past few months, not least Blacks and La Senza. But does that mean that they shouldn’t be reviewed?

According to Ed Davey, the minister for employment relations, the idea of an overhaul has been dropped because ‘the Government is not convinced that the benefit of new legislative controls presently outweighs the overall benefit to businesses of adhering to the moratorium on regulations affecting micro-business which is an important plank of this Government’s deregulatory agenda’. Which we presume is a mealy-mouthed way of saying that, given the state of the economy, now is not the time to introduce new legislation which would effectively put jobs at risk.

But despite the fact that pre-packs have played a role in saving jobs (up to 4,000, in the case of Blacks) it’s often at the expense of creditors, who find themselves with extensive unpaid bills. The British Property Federation is particularly vocal on this point, saying that landlords suffer because of unfulfilled rental agreements. Ian Fletcher, the BPF’s policy director, said the Government has ‘wasted 18 months’ of consultation. ‘This decision leaves creditors as exposed to sharp practice as when this debate started 18 months ago,’ he added. ‘Whether by legislative or non-legislative means, creditors now expect the Government to move swiftly to provide increased protection.’

The Association of British Insurers is similarly worried about the recent spate of pre-packs: in a submission to Parliament, it expressed concerns that they’re being mooted by insolvency advisers as a way to avoid paying debts while keeping the business going. The popularity of pre-packs certainly makes it increasingly unlikely that struggling firms will be rescued inclusive of debt. What buyer would choose to do so if a debt-free option was available?

But the Government hasn’t thrown out the idea of an overhaul altogether: as Davey pointed out, it’s ‘apparent that concerns remain about the use of pre-pack sales’. But it doesn’t seem to think that now is the time. So make yourselves comfortable: it looks like this one will go on for a while…

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