19 Jun 2009: Pre-Packs - The Final Straw
I recently read an article from a representative of one of Newcastle's leading law firms explaining and extolling the virtues of pre-pack administrations.
For those that are fortunate enough not to have encountered this particular piece of legal nonsense, a pre-pack administration is basically a deal for the sale of a business before it becomes insolvent. The sale can be to the very people who were in charge of the company before it became insolvent or to one of their competitors, allowing the new company to rid themselves of all existing debts and start again with a clean slate. Great for them, great for the administrators who pick up hefty fees for their advice, possibly great for the employees but not so good news for the creditors who have to watch by helplessly as the new organisation, usually indistinguishable from the old one, goes about its business seamlessly, producing and delivering the same products and services as it used to, but free of debts...
Lawyers and accountants can spin it as they wish - pre-packs should be abolished as they are simply being used by directors to avoid paying legitimate creditors.
It is astonishing to most of us that the legal system seems to work entirely in favour of those who don't or can't pay their debts, whilst trying to chase legitimate payments involves such a lengthy and expensive process that many creditors simply walk away.
The pre-pack, to my mind, seems the epitome of this flawed legal system which favours those of dubious morals who use it to renege on debts and bounce back with a clean slate. The system is wrong and so are are those organisations, including professional advisors, that take advantage of it.
And yes, we have been burned on more than one occasion by this particular obnoxious example of legal robbery...
For those that are fortunate enough not to have encountered this particular piece of legal nonsense, a pre-pack administration is basically a deal for the sale of a business before it becomes insolvent. The sale can be to the very people who were in charge of the company before it became insolvent or to one of their competitors, allowing the new company to rid themselves of all existing debts and start again with a clean slate. Great for them, great for the administrators who pick up hefty fees for their advice, possibly great for the employees but not so good news for the creditors who have to watch by helplessly as the new organisation, usually indistinguishable from the old one, goes about its business seamlessly, producing and delivering the same products and services as it used to, but free of debts...
Lawyers and accountants can spin it as they wish - pre-packs should be abolished as they are simply being used by directors to avoid paying legitimate creditors.
It is astonishing to most of us that the legal system seems to work entirely in favour of those who don't or can't pay their debts, whilst trying to chase legitimate payments involves such a lengthy and expensive process that many creditors simply walk away.
The pre-pack, to my mind, seems the epitome of this flawed legal system which favours those of dubious morals who use it to renege on debts and bounce back with a clean slate. The system is wrong and so are are those organisations, including professional advisors, that take advantage of it.
And yes, we have been burned on more than one occasion by this particular obnoxious example of legal robbery...
