A panel created to uphold the transparency of pre-pack administrations has issued a ‘use it or lose it’ plea to creditors after seeing a year-on-year decline in usage.
The Pre-Pack Pool was created in 2015 to address a criticism of pre-pack administrations becoming debt-dumping exercises and leaving unsecured creditors out of pocket.
A pre-pack administration is where a sale of the business to a connected party is agreed before it formally enters into administration.
The pool is an independent body of business people where an appointed member will analyse a pre-pack deal on behalf of a creditor or acquirer to determine whether it is reasonable for the transaction to proceed.
In the pool’s first 14 months it reported on 53 cases, which fell to 23 cases in 2017 and 24 cases in 2018 – the first quarter of 2019 has seen six cases referred.
Stuart Hopewell is a Director at the Pre-Pack Pool, and spelt out its importance.
He said: “The Pre-Pack Pool provides useful reassurance to creditors that they stand a realistic chance of getting their money back should the debtor enter into a Pre-Pack – which also enables a business’s directors to keep their creditors on-side in the long term.
“The drop in referrals is likely to be a combination of creditor apathy and directors seeing little point in approaching us if there are currently no sanctions in place for not doing so – this is why we are pushing for it to be compulsory for every Pre-Pack to be referred to us before it can proceed.
“High-profile cases such as Debenhams, where the lenders have acquired the business, make our case even more compelling. While the deal is legitimate, is it in the best interests of landlords, suppliers and employees?
“People such as Chair of The Work and Pensions Committee Frank Field MP along with Sir Vince Cable are backing our stance to make referrals to the Pre-Pack Pool compulsory when the Government reviews the system in May 2020, where they could even end up banning the practice totally.”
Brendan Clarkson, insolvency expert at insolvency and restructuring firm CVR Global, echoed Hopewell’s calls for the industry to make more use of the Pre-Pack pool.
He added: “As insolvency practitioners we want to see transparency for all parties involved in the administration process, so it is disappointing to see the Pre-Pack pool currently being under-utilised as it’s a missed opportunity, particularly for creditors.
“Our industry needs a form of compulsory third-party analysis of pre-pack administrations, and we will be supporting this measure when the Government reviews the system in 2020.”