For the uninitiated, a pre-packaged sale (or prepack) is one that is negotiated in advance of administration and completed by the administrators when they are appointed. It would be wrong to suggest prepack administrations are universally a bad thing. They can be the quickest means of salvaging a distressed business, while avoiding an often protracted open-market sale process.
It is the perceived lack of transparency that some observers find discomfiting. Creditors in particular may think a better deal could have been achieved through open marketing.
This is especially so where the business is sold back to the owners of the insolvent company, minus debts and liabilities that creditors have to write off – as in the recent case of DCM Optical Clinic. Some even ask whether insolvency was the true driver behind that sale, as opposed to a strategic restructuring of the business.
Despite an improving economy, the issue of prepacks remains a live one. Today, the Insolvency Service brings into force a beefed-up version of the Statement of Insolvency Practice 16 regulations, setting out standards to be followed and information to be disclosed by insolvency practitioners appointed to any prepack. It has also launched a review into whether prepacks are in the interests of creditors and the wider economy.
Against this backdrop, landlords – often the largest unsecured creditor group – are right to examine the circumstances and outcome of any prepack. Creditor engagement and insolvency practitioner openness are crucial to demystifying the process, balancing competing interests and stamping out any perception of abuse.
An earlier version of this article was published in Property Week on 1 November 2013.