Pre-pack deals need ‘ independence and transparency’

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The use of independent specialists who can rapidly find buyers for failing businesses could help to end the controversy over pre-pack administrations, says Clearwater Corporate Finance.

It says that pre-packs – where a company is placed in administration and sold almost immediately – are often the best solution for ailing firms, despite recent criticism from government select committee and a recent report by the government’s Insolvency Service which accused accountants of “mocking the rules”.

However when a business is offered for sale by the insolvency practitioner and sold back to its former owners, the lack of independence risks bringing the process into disrepute. As a result, pre-packs have attracted widespread criticism and are open to accusations of abuse. According to Clearwater, more independence and transparent professional marketing of the business would remove any question of impropriety.

Phil Burns, managing partner with Clearwater, admits it can be difficult to market a business that is about to go bust. Commercial sensitivities often prevent it being publicly advertised and any deal must be concluded quickly. It is inevitable creditors will lose out if a business has failed, but minimising these losses and saving as much of the business and the jobs that go with it must be the priority. Include all that in a professional, independent and transparent process and a pre-pack will regularly deliver the best outcome.

In a recent case Clearwater managed to consider over 50 different buyers for a business and still deliver a solution within a tight timescale.

Phil Burns says: “Pre-packs are the most sensible solution in many insolvency situations and preserve more of the business – in terms of jobs, customers and goodwill – than if it were to languish in administration. All too often the job of finding a buyer is left to the insolvency practitioner or accountant, and in many cases the existing owners buy the business back when they were not the best or only candidates.

“The use of an independent accelerated mergers and acquisitions specialist with the skills to access a wider pool of buyers within a short timeframe would open up more options and ensure greater transparency. It would also help reassure creditors that the deal was the result of a properly run sale process and one which had achieved maximum value.”