Insolvency

You have dealt with ‘Failing Company Ltd’ for years but recently it has been struggling and, at close of play one Friday, it owes you several thousand pounds.

The following Monday you receive a letter from IP Insolvency Practitioners, explaining that the directors of Failing Company Ltd appointed them as Administrators. It is unlikely you will see any return on the thousands of pounds which Failing Company Ltd owed you.

Your post tray also contains an order from Try Again Ltd. The directors of Try Again Ltd are the same as the directors of Failing Company Ltd and the address, registered office and contact details are all the same. It may seem that Failing Company Ltd’s directors have avoided you and their other creditors and re-started the business, debt free, in the name of Try Again Ltd. Is this legal?

This may be a pre-pack administration sale (pre-pack), which allows for Failing Company Ltd to enter into administration and for the administrators to sell the business of Failing Company Ltd to Try Again Ltd. Try Again Ltd may be run by the previous directors or by a third party.

The Enterprise Act 2002 enables a company or its directors to appoint an administrator without having any recourse to the courts. Companies such as Whittard of Chelsea and MFI have been subjects of pre-packs. The process has been criticised as an unjust way to restart a business leaving creditors unpaid and without notice of the pre-pack until after completion. However, the Insolvency Service has stated that ‘a pre-pack may offer the best chance for a business rescue, preserve goodwill and employment, maximise realisations and generally speed up the insolvency process’.

To combat the negative publicity of pre-packs, new guidelines have introduced safeguards which aim to resolve complaints about lack of transparency and accountability; although these may mean a decline in their use, pre-packs remain valuable. We work with insolvency practitioners who are well qualified to ensure that the best option is always chosen to enable a business to be saved whilst ensuring creditors are fully informed.

Contact Kevin Sullivan on 01206 217376 or email [email protected]