Friday, 27 February 2009

Pre-packs: now you can have your say

Fashionista has been mulling over the buzz words which have come out of the current economic climate to ensure that she is on top of all the new lingo. Fashionista does, of course, consider herself to be a "recessionista" i.e. a person who is able to remain fabulously stylish during times of economic hardship and is all too aware that her "credit" has been severely "crunched" (if you are unsure of the meaning just check the latest edition of the Oxford Dictionary where the term now appears). There is even a dedicated blog for Recessionistas giving you access to the best bargains in town.

One of the more controversial buzz words, in Fashionista's view, is the term "pre-packs" which has become a staple phrase particularly in the retail sector owing to the large number of "pre-pack" deals which have taken place in this space.
A "pre-pack" is generally a deal where a company is put into administration and its business and assets are then immediately sold under a sale agreement which was negotiated before the administrator was appointed. Recent examples include the sales of Faith, USC and Envy which took place towards the end of last year, all of which were sold by way of a pre-pack transaction.

There are no specific regulations that deal with pre-packs although the insolvency processes and insolvency practitioners are themselves under the regulation of their professional bodies and control of the courts. Fashionista is aware however that the Association of Business Recovery Professionals have recently produced Statement of Insolvency Practice 16 which obliges insolvency practitioners to give substantial information to the unsecured creditors as to why a pre-pack was used. This is however not provided until after the deal has been concluded and accordingly some might say that is a little late to be closing the gate (with the horse being long over the horizon).

Pre-packs can help preserve businesses and jobs, as well as achieving an enhanced value for the assets of an insolvent company, but critics say they allow the old management to walk away from their debts too easily whilst still allowing them to remain involved with the purchaser going forward (like a phoenix from the flames). The mantra of "if at first you don’t succeed, try, try again" does not seem in such circumstances to instil the right level of confidence! Fashionista's view on this is much the same as her view of stonewashed jeans with matching denim jackets- there's a time and a place for them (in the latter case, for cowboy themed fancy dress parties only!).

Interestingly, the Insolvency Service has now invited complaints from anyone who feels unduly disadvantaged by a pre-pack sale so it seems that there is an effort to give pre-packs a much needed image overhaul. Time will tell as to how effective this is.


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