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Wednesday
Aug052009

Small firms ‘blackmailed’ in pre-pack deals

The unfairness of pre-pack administrations that often blackmails landlords and suppliers to swallow huge losses is under attack from the Association of British Insurers (ABI).

About 380 (29%) of the 1,311 business administrations in the first half of the year were pre-packs, said the Insolvency Service. Pre-packing allows companies with large deficits to agree a deal to sell the business before it goes into administration. Often the original owners buy back the business, dumping its debt and leaving creditors often significantly out of pocket. 

The latest big firm threatening to short change creditors with a pre-pack is Focus DIY.

Focus wants a company voluntary agreement (CVA) with landlords that will allow the firm to walk away from leases at closed stores. In return the landlords would receive two dividends in return for losing rent. 

If the landlords vote against the CVA, Focus is likely to close and reopen straight away via a pre-pack deal that would leave the landlords out of pocket as they would receive no rent or dividend payment.

Focus has 38 closed stores — 18 of which are sub-let — costing £12 million a year rent, with a CVA the company would save £8.6 million a year in rent.

The ABI is calling for reforms to ‘pre-pack’ administrations rules to give unsecured creditors more protection against business failures. 

In a letter to the Government’s Insolvency Service, the ABI has called for:

    * Strengthening pre-pack regulation compliance by the Insolvency Service

    * A ban insolvency practitioners acting for a distressed company both before and immediately after administration, introducing a “second pair of eyes” into the pre-pack process to ensure that the proposed arrangements are genuinely in the best interests of all creditors

    * Insolvency practitioners having a duty to return any unsold goods without undue delay.

Nick Starling, the ABI’s Director of General Insurance and Health, said:  “The UK insolvency regime has a disproportionately negative effect on unsecured creditors. Our main concerns are the complete lack of transparency in pre- pack administrations, and the absence of a voice for unsecured creditors during the insolvency process.”   

 



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    Small firms ‘blackmailed’ in pre-pack deals - Tax, Legal & Business News from London - St Matthew Accountants London
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    Small firms ‘blackmailed’ in pre-pack deals - Tax, Legal & Business News from London - St Matthew Accountants London
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    Small firms ‘blackmailed’ in pre-pack deals - Tax, Legal & Business News from London - St Matthew Accountants London
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    Small firms ‘blackmailed’ in pre-pack deals - Tax, Legal & Business News from London - St Matthew Accountants London

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