BRS comment On Proposed Changes to Pre-Pack Administration

Business Rescue Service give their comments regarding the latest proposed to the changes in how Pre-Pack Administrations work.
  • (1888PressRelease) August 06, 2011 - Concerns have been raised that one of the most widely used options to resolve company insolvency could lose many of its key benefits. Insolvency Service officials met this month to discuss radical changes to pre-pack administration. In future, existing managers or directors could be faced with just over three working days to purchase a failing business. The move has raised concern in many sectors, with many experts saying the changes simply miss the point.

    Pre-pack administration exists as a possible alternative to liquidation when a company's financial problems simply begin to overwhelm it. At present, it is possible for those who have been at the helm of the company to purchase it using the pre-pack route. This has meant in some cases that existing staff have been retained after the sale.

    "Pre-pack administration has a number of key benefits over compulsory or voluntary liquidation. It can't apply in every case, but nonetheless when it does there are a number of advantages. The original Directors and/or management team are sometimes able to raise funds to purchase the business. From their point of view, they don't have to be the ones to let valuable staff go. They can also begin to adjust the companies activities after the sale towards profitability. Clearly avoiding expensive recruitment costs is obviously desirable at this stage. In the medium to long term, providing it is properly managed, pre-pack can in fact represent a valuable route to turnaround" said a spokesman from Business Rescue Service.

    The approval of creditors is not a current requirement, and the sale can go though relatively quickly. However, the landscape is likely to change forever in the near future. Should the changes go through as the Government's Insolvency Service is currently proposing, this may all no longer be possible in a significant number of cases. Existing managers and Directors would have just a little more than three working days to purchase the business. They may gain a day or two's grace due to weekends and postal times. Yet they would still be left with a week at most. Some industry leaders have voiced concerns over the new timescale. They argue that continuity of employment could be sacrificed as a result. Suppliers may be unable to work with the new company, whatever their preferences, due to constraints imposed by their credit insurers. Turnaround experts Business Rescue Service gave their summary of the current benefits:

    "As things stand at the moment, there are certain time limits by which key steps must be taken. Companies are able to negotiate a potential sale on their own. But they then must appoint an insolvency practitioner to supervise that sale, according to stringent rules. The advantage is that the company can be sold relatively quickly, and it's generally seen as a positive option within the insolvency industry,"

    Any company requiring information on pre-pack administration, or any other aspect of company insolvency can contact The Business Rescue Service on 0845 468 2395,

    or visiting their website at www.businessrescueservice.co.uk

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