2019 Retailers in trouble thread
Discussion
Alpinestars said:
I’m going to reiterate that it sounds like you don’t know the process.
An IP HAS to market the assets/company before selling (pre-packing). He has to get the best deal for creditors as a whole.
The assets are open for any of us to buy.
The “buyer” is normally a creditor.
The equity (owner) normally loses out, often entirely.
It’s then up to the new owner to appoint whatever management he/she wants to.
There will no doubt be cases of abuse, like in all walks of life.
I work in an industry which is rife with pre-packs and whilst I am sure just enough is done to make the process legal, the reality is that SuperPrint go bust on a Friday and on Monday NewSuperPrint is running from the same building, with the same kit, and the same staff. All that has changed is they have left a load of debt behind, often to small suppliers who will struggle to pick up the pieces. Meanwhile it’s high fives all round at NewSuperPrint and their “professional practitioners”. An IP HAS to market the assets/company before selling (pre-packing). He has to get the best deal for creditors as a whole.
The assets are open for any of us to buy.
The “buyer” is normally a creditor.
The equity (owner) normally loses out, often entirely.
It’s then up to the new owner to appoint whatever management he/she wants to.
There will no doubt be cases of abuse, like in all walks of life.
RicksAlfas said:
I work in an industry which is rife with pre-packs and whilst I am sure just enough is done to make the process legal, the reality is that SuperPrint go bust on a Friday and on Monday NewSuperPrint is running from the same building, with the same kit, and the same staff. All that has changed is they have left a load of debt behind, often to small suppliers who will struggle to pick up the pieces. Meanwhile it’s high fives all round at NewSuperPrint and their “professional practitioners”.
What you’ve observed is the continuation of the business. A key part of the administrator’s role. Otherwise there would be no need for administrations, as liquidations are there to cater for burials. Administrations revive, liquidators bury. Administrations were brought in so that business could continue. Ie, exactly what you’re describing. I’ll say it again, the role of the administrator is to rescue the business whenever possible - what you’re describing is exactly that - with the interest of ALL creditors at the heart of what he does. If a business has a secured credit, often the value of the business is below the value of the secured creditor’s debt. So unless someone is going to pay that creditor more than the value of business, it’s broadly his. Just like a mortgaged house.
Pre-packs are where the business is sold to the someone who is identified prior to insolvency, ie the marketing is done beforehand - because the business is worth less than the secured debt, the secured creditor has the upper hand, and often wants his debt paid in full to relinquish “control”. Not many people want to pay the creditor his full due to own the business, so you often see the new owners being the secured creditor. The advantage of PP is that once it’s out in the public domain that a company is insolvent, it’s less likely to end up as a going concern/value is leaked. That helps no one. None of that usurps the fact that the administrator must get the best value for ALL creditors.
Alpinestars said:
Brooking10 said:
Alpinestars said:
What would you know 
.
A whole load of not much . 
There does seem to be some confusion between Phoenixing of old and the bonafide PP route you outline clearly above.
Not helped by the fact that just about every media report of a PP uses “involving a controversial insolvency process known as a prepackaged administration”
And who deemed it controversial and sowed that seed ?
You guessed it .......!!!
Brooking10 said:
Ditto !!
There does seem to be some confusion between Phoenixing of old and the bonafide PP route you outline clearly above.
Not helped by the fact that just about every media report of a PP uses “involving a controversial insolvency process known as a prepackaged administration”
And who deemed it controversial and sowed that seed ?
You guessed it .......!!!
Precisely. Optically, from the outside, someone might form a view. But once you know the law, understand the process, and advise on it, it’s pretty clear as to what it is, and why it’s done. It doesn’t disadvantage creditors. The alternative is liquidation - where the order of payments is no different, the business dies, which often means a lower realisation than in administration. There does seem to be some confusion between Phoenixing of old and the bonafide PP route you outline clearly above.
Not helped by the fact that just about every media report of a PP uses “involving a controversial insolvency process known as a prepackaged administration”
And who deemed it controversial and sowed that seed ?
You guessed it .......!!!
Alpinestars said:
What you’ve observed is the continuation of the business. A key part of the administrator’s role. Otherwise there would be no need for administrations, as liquidations are there to cater for burials. Administrations revive, liquidators bury. Administrations were brought in so that business could continue. Ie, exactly what you’re describing.
I’ll say it again, the role of the administrator is to rescue the business whenever possible - what you’re describing is exactly that - with the interest of ALL creditors at the heart of what he does. If a business has a secured credit, often the value of the business is below the value of the secured creditor’s debt. So unless someone is going to pay that creditor more than the value of business, it’s broadly his. Just like a mortgaged house.
Pre-packs are where the business is sold to the someone who is identified prior to insolvency, ie the marketing is done beforehand - because the business is worth less than the secured debt, the secured creditor has the upper hand, and often wants his debt paid in full to relinquish “control”. Not many people want to pay the creditor his full due to own the business, so you often see the new owners being the secured creditor. The advantage of PP is that once it’s out in the public domain that a company is insolvent, it’s less likely to end up as a going concern/value is leaked. That helps no one. None of that usurps the fact that the administrator must get the best value for ALL creditors.
Who identifies that someone prior to insolvency?I’ll say it again, the role of the administrator is to rescue the business whenever possible - what you’re describing is exactly that - with the interest of ALL creditors at the heart of what he does. If a business has a secured credit, often the value of the business is below the value of the secured creditor’s debt. So unless someone is going to pay that creditor more than the value of business, it’s broadly his. Just like a mortgaged house.
Pre-packs are where the business is sold to the someone who is identified prior to insolvency, ie the marketing is done beforehand - because the business is worth less than the secured debt, the secured creditor has the upper hand, and often wants his debt paid in full to relinquish “control”. Not many people want to pay the creditor his full due to own the business, so you often see the new owners being the secured creditor. The advantage of PP is that once it’s out in the public domain that a company is insolvent, it’s less likely to end up as a going concern/value is leaked. That helps no one. None of that usurps the fact that the administrator must get the best value for ALL creditors.
hutchst said:
You're describing packing. The clue is in the pre-
It's all done and dusted behind closed doors before the event. It's pretty shoddy practice.
This is the tabloid version, not what actually happens.It's all done and dusted behind closed doors before the event. It's pretty shoddy practice.
What actually happens is that the business is touted for sale to a relatively large number of potentially interested acquirers (in a recent case this was over 300) comprising individuals, distressed equity, normal equity and existing market participants.
This is done relatively discretely because if news of the impending insolvency became public the subsequent reduction in turnover would be detrimental to the value of the business and the recovery prospects to all the creditors.
In the meantime, the existing creditors are kept as flat as possible (that is to say you pay for what you need so as not to build up any more liability) while the sale process is completed with the highest bidder.
The alternative is the business is handed over to an Administrator who most likely would cease operations immediately. In the above case that would have triggered an enormous series of contingent creditor claims which the proposed sale mitigated entirely. In addition, in this scenario the Administrators fees (remember those...?) would quite possibly be far higher as they'd have to deal with the assets on a piecemeal basis, the gross realisations from asset sales would be lower and claims higher - the return for all creditors would be much less.
Now, I can understand the frustrations with Directors phoenixing businesses to themselves, but that's a completely different matter - to blanket criticise pre-packs as they are always completed for the wrong reasons is misunderstanding their benefits and the alternative outcome.
hutchst said:
Who identifies that someone prior to insolvency?
The proposed Administrator, normally after the Directors have filed a Notice of Intent to Appoint [him/her as] an Administrator.It is the Administrator that completes the sale shortly after their appointment - not the Directors - and therefore he/she has to be confident that the sale is in the best interest of the creditors. Read SIP 16 if you can't get to sleep one night. Or better still, read the Adminsitrators proposals (from Companies House) including the SIP16 note on a recent pre-pack sale.
Edited by sleepezy on Saturday 9th November 16:07
sleepezy said:
The proposed Administrator, normally after the Directors have filed a Notice of Intent to Appoint [him/her as] an Administrator.
It is the Administrator that completes the sale shortly after their appointment - not the Directors - and therefore he/she has to be confident that the sale is in the best interest of the creditors. Read SIP 16 if you can't get to sleep one night. Or better still, read the Adminsitrators proposals (from Companies House)
including the SIP16 note on a recent pre-pack sale.
A number of people can appoint an administrator, including Directors and certain creditors. It is the Administrator that completes the sale shortly after their appointment - not the Directors - and therefore he/she has to be confident that the sale is in the best interest of the creditors. Read SIP 16 if you can't get to sleep one night. Or better still, read the Adminsitrators proposals (from Companies House)
including the SIP16 note on a recent pre-pack sale.
And if you really want some bedtime reading - Part 3.
http://www.legislation.gov.uk/uksi/2016/1024/conte...
So it's a 'proposed administrator', nobody is actually formally appointed because there is, at that point in time, no insolvency.
One man's 'relatively discretely' is another man's 'behind closed doors'.
I'm not saying its unlawful, just that I think it's shoddy. I've been on the receiving end (in other jurisdictions).
One man's 'relatively discretely' is another man's 'behind closed doors'.
I'm not saying its unlawful, just that I think it's shoddy. I've been on the receiving end (in other jurisdictions).
hutchst said:
So it's a 'proposed administrator', nobody is actually formally appointed because there is, at that point in time, no insolvency.
One man's 'relatively discretely' is another man's 'behind closed doors'.
I'm not saying its unlawful, just that I think it's shoddy. I've been on the receiving end (in other jurisdictions).
No no and no. One man's 'relatively discretely' is another man's 'behind closed doors'.
I'm not saying its unlawful, just that I think it's shoddy. I've been on the receiving end (in other jurisdictions).
An administrator is appointed to make the sale. Directors no longer have control over the running of the company. And the administrator must do all the things I previously set out. An administrator is lined and, but not appointed earlier, so that there’s no damage to the business. This doesn’t change the purpose of the admin, or his role and duties.
sleepezy said:
Alpinestars said:
A number of people can appoint an administrator, including Directors and certain creditors.
I know, I am trying to answer the question asked though, not comprehensively quote legislation 
Alpinestars said:
No no and no.
An administrator is appointed to make the sale. Directors no longer have control over the running of the company. And the administrator must do all the things I previously set out. An administrator is lined and, but not appointed earlier, so that there’s no damage to the business. This doesn’t change the purpose of the admin, or his role and duties.
You're deliberately conflating putting together the pre-pack deal with selling the business.An administrator is appointed to make the sale. Directors no longer have control over the running of the company. And the administrator must do all the things I previously set out. An administrator is lined and, but not appointed earlier, so that there’s no damage to the business. This doesn’t change the purpose of the admin, or his role and duties.
My point is simple, that the pre-pack part of the deal is done in secrecy, by a party engaged by some, but not all, of the creditors, and when that deal has been reached, the insolvency then takes place and the 'arranger' then gets appointed formally, and then from that point on has a legal duty to all the creditors.
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