Pre-Pack administration is a controversial issue. The technique is criticised on the diverse grounds assuming it- as a puppet and nothing else in the hands of the debtor. Recently certain big names such as Black Leisure, Laurel Pubs, and Bon Marche had been under Pre-Packaged Administration. These sales were criticised as they allegedly misused the technique of Pre-Pack to continue their business without any hurdle.
The ‘Pre-Packaged’ administration is a procedure under which the assets of an insolvent company are processed to be sold immediately under a sale agreement before the assignation of an administrator. The sale of the assets begins instantaneously right after the administrator is appointed. It is substantial to know that an administrator must be a licensed Insolvency Practitioner. Since 1982 when the Cork Committee in the UK was established to advance the UK insolvency law, the basic motive of the Act since then has been the maintenance and protection of the corporate structure.
The prompt sale also known as ‘Quickie Bankruptcy’ is disowned calling it as improper, iniquitous, and unjust towards the investors and related parties. The study argues Pre-packs to be the ‘hub’ of misuse, the variant ways under which the director misuses his capacity and misleads the directors was displayed. Research also showcased the suppression of unsecured creditors by the secured ones by taking away their rights to be paid fully or partially. Pre-Pack administration is often chosen by the debtors over other administration techniques as it succours in dropping the burden of debts from the debtor’s shoulders or let just say it is a method of “debt dumping”. The insolvent company swiftly transfers its liabilities, unpaid creditors, and the employees to a new company without any hassle by the court or Insolvency laws. In situation where the transfer is to a phoenix company, the owners obtain a ‘debt free’ business under a new name yet running the same business with same set of employees.
The steadfast misuse of Pre-Packs has altered its basic purpose which was “Corporate Rescue”. The cause for birth and growth of Pre-pack administration was to save the insolvent companies from dissolving and to maximise returns for its creditors. The manipulation has given rise to fear of being cheated in the minds of creditors and people at large.
Pre-Pack have only proved to be a trick for its creditors rather being any treat, therefore to ensure a healthier environment for Pre-packs to grow it is essential to accumulate opinions of all closely related parties including the unsecured creditors. For an efficient and successive Pre-Pack, related people should give an unbiased review and quote the flaws immediately eradicate them completely. Thence the aim of Pre-Pack Administration laws should be clear, uncomplicated and fool proof.
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