Shropshire insolvency lawyer welcomes government U-turn on pre-packs

Brian Aikman, Partner in the Insolvency Team at Shropshire law firm FBC Manby Bowdler LLP, is pleased that the government had scrapped its proposals to introduce a three or seven day ‘cooling off’ period before a pre-pack deal could take place.

“Any legally enforced time delay in a pre-pack deal could lead employees to walk away, crucial orders or key contracts to be lost or delayed and key customers to seek alternative sources of supply. This would drive down the value of the business, even to a point where no buyers would be interested in the company as a going concern, leading to the failure of the company and the loss of all jobs,” says Mr Aikman.

“The recent successful pre-pack deals for Blacks Leisure, La Senza, and Bon Marche, where the businesses and many jobs have been saved seems to have persuaded the government that the current system is working fairly, after all.”

According to Mr Aikman, the government’s original proposals seemed based on the belief that the majority of pre-packs are ‘phoenix’ operations with the existing management buying back the business debt free for a song.

He says: “That sort of dubious phoenix re-start is now quite rare and it is much more usual that the pre-pack purchaser of a business is a key supplier or customer who sees the value in maintaining continuity of supply or receipt of key components or services.

“Obviously, such ‘connected’ purchasers would not be interested in acquiring the existing management along with the business unless they believed them to be honest and competent and key to the business continuing.

“Times are tough for many businesses at present and we are advising many companies on how best to survive, so it is heartening that the government has not dealt a potentially fatal blow to pre-pack administrations.”