Only a quarter of pre-packs get reviewed by 'toothless' scrutiny body
Pre-Packs ‘rip off’ creditors, pensions and employees.
Odessa print should have been referred to the Pre-Pack Pool but they didn’t want the scrutiny a director of the Pool has told ICSM Credit. Stuart Hopewell said the Biggin Hill company was a case in point where the Pre-Pack Pool should have looked at the deal made with the administrator and buyers but couldn’t as the Pool does not have any powers to enforce scrutiny.
He said: “At the moment it is up to the creditors of an insolvent company to take a view. It is very frustrating when this happens because if a firm is referred to the Pool then it increases confidence with a pre-pack and it is seen as more legitimate.”
Pre-packs have come under sustained fire from the media, politicians, pension schemes and creditors for the way in which they have been seen legitimise phoenix firms who dump their debt and restart under a slightly different name having bought the assets from the administrators.
Ian Carrotte of ICSM Credit said: “Odessa called in the administrators on October 18th this year following trading difficulties. However, a new business called Odessa Global Limited was incorporated at Companies House on October 1st, while Odessa Print Group continued to trade. Events like this can give pre-packs a bad name. All pre-packs should be scrutinised so as to ensure transparency.”
The Pre-Pack Pool was formed to scrutinise firms that go into administration and seek a rescue or a buyer with a pre-pack deal. However it is only an option to refer a pre-pack to the Pool as there is no compulsion with only a quarter of pre-packs referred in this way according to The Times newspaper. The Pool is made up of industry insolvency experts who can rule whether a pre-pack is reasonable or not. The idea is to try to save jobs and a business that has got into trouble by arranging for the firm to survive and continue trading while retaining the loyalty of suppliers and customers. The main issue is if the collapsed firm is bought by all or some of the previous directors then it is seen as little more than a phoenix. The staff will have lost wages, creditors will have lost much if not all of their cash and the owners can absolve themselves of their responsibilities. And then there’s the matter of the firm’s former pension scheme.
The Financial Times investigated a number of firms using pre-packs over their treatment of their own pension schemes last year by looking at 148 pre-packs. They estimated the procedure allowed collapsed firms to offload £3.8bn onto the Government’s and the tax payer funded pension protection scheme. The newspaper quoted Prem Sikka, a professor of accounting at Essex University, as saying: “Company directors can walk away from legal obligations to fund pension schemes with the full knowledge that Pension Protection Fund (PPF) will step in. Pre-pack insolvencies are harming pension schemes and are ripe for major reforms.”
Meanwhile Stuart Hopewell said it was up to the Government to decide whether to make all pre-packs subject to compulsory scrutiny - but as he pointed out there's the small matter of a General Election and a potential change of Government and business secretary.
What do you think? ICSM Credit welcomes your views – email harry.mottram@icsmcredit.com
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