There are serious questions being raised about pre-packs – the process where a buyer is sought out and negotiated with for a struggling business before it goes into administration (Whittards of Chelsea and The Officers’ Club being two recent examples). Since the 2002 Enterprise Act, these deals have become relatively extensive throughout industry.

The core idea is actually sound in many ways. It allows an administrator to sell a business to a party with resources before that business is badly damaged by negative publicity; this is especially true regarding businesses that have suffered badly with cash flow problems, often on a short term basis. Pre-packing also allows a business to change hands smoothly and with greater efficiency than may otherwise prove possible. They have proven to be a low cost method of transferring the businesses and have the great advantage of often avoiding liquidation.

Unfortunately, evidence is mounting that creditors, especially suppliers, are often losing out in this process. Suspicions are being raised that in some recent cases the market price for the business has not been tested as deeply as it might have been. Last year a High Court ruling that a business could go into pre-pack against the wishes of the leading creditor caused many to wonder if jobs were not being saved, temporarily, in one business, even though this could cause another to shed staff.  In this case HM Revenue & Customs was on the losing side, and reports are that this body is now refusing to give