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Post by bracknellboy on Jan 27, 2014 8:45:11 GMT
I am absolutely not an expert in this area (or many others frankly....), so I would be very keen to hear from someone who does have good in-depth knowledge. And by the way I'm not trying to back the concept of pre-packs, but my lack of knowledge also tells me to be cautious in regard to simply dissing them. I assume that:
- An administrator has to be convinced that the business could not continue to be run on a going concern basis. Cancellation of debts is a serious thing and there is therefore a measure of protection around that. I would have expected the same rules/guidelines would apply as to any other administration.
- The administrator still has a duty to ensure that fair/reasonable value is extracted for the creditors. I would have expected, but don't know, that the same broad criteria would have to be used whether its a pre-pack or the company is put into administration without a planned exit.
I assume that the thinking from a regulation point of view for allowing pre-packs whereby the original owners get control of the "newco" is that in many cases this will offer the best route to having a viable business coming out the back of it, at the fastest rate. As opposed to protracted period of finding buyers or trying to recapitilise, during which time the chances of there being an actual business coming out the end diminish rapidly ulitmately leading to a liquidation with even less value for creidtors, and with racking up of administrator fees.
But I'm talking from a position of ignorance.
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pikestaff
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Post by pikestaff on Jan 27, 2014 9:08:44 GMT
I share the instinctive dislike of pre-packs. They leave a nasty taste in the mouth. But sometimes they may be the least bad option. I will make up my mind after the full credit report is posted. Meanwhile some observations based on the front page of the report: - The business has been trading for 25 years, so malice aforethought is unlikely.
- It's obvious that the business cannot trade out of its problems without some kind of insolvency procedure. Interest cover after reducting bank debt from £2.7m to £0.5m is said to be approximately 2, implying interest cover before reduction of just 0.5 (give or take, depending on what rate the bank is charging).
- If the pre-pack is a secret, it is a pretty open one. Key suppliers are said to have agreed to it, and (unless I am very much mistaken) the business is easy to identify from the information posted.
- The only alternative that I can see to a pre-pack would be to let the company go into "regular" administration and take it from there. If I am right about the identity of the business, it will be taking bookings from the public, who are unlikely to want to book with a company in administration. Also from tour operators/agencies, who may be holding back until the situation is resolved. Hence a pre-pack may be the best way out.
Edit: Posted before seeing bb's comments, with which I agree. |
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j
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Penguins are very misunderstood!
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Post by j on Jan 27, 2014 9:10:23 GMT
I am absolutely not an expert in this area. Neither are many of us probably! It would be good to have some info & elaboration from AC as to the rationale for this loan & why they feel it would be worth backing, despite the ethical & financial issues a number of us have raised. I'll happily take the opportunity to be educated further on this sort of financial situation to help make a more reasoned decision.
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Post by andrewholgate on Jan 27, 2014 10:17:18 GMT
Mark Wardrop is our Operations Director and is also JIEB qualified meaning he is an Insolvency Practitioner. I will ask him to write a piece on pre-packs and why they are not necessarily a bad thing. Essentially, they preserve jobs, which generates tax income for HMG, a trading business generates VAT income and also a profitable business generates corporation tax income. HMG would rather this happens and the tax take continues as it lessens the impact on the wider economy.
I'm also fairly certain that the major creditors have to agree to the pre-pack taking place, especially when legal charges are in place.
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oldgrumpy
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Post by oldgrumpy on Jan 27, 2014 10:27:01 GMT
If this is the holiday business I think it is, its reviews seem to indicate it is a decently run place (though hardly the venue for continuous serving of franchise burgers!!) so I am hoping that when we see the full details they will reveal that not just the major creditors such as the bank will have agreed, but that the smaller creditors (who presumably will still be required for goods/services) will not lose out and will be treated fairly.
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Post by batchoy on Jan 27, 2014 10:27:12 GMT
..... Essentially, they preserve jobs, ....... A mute point having seen what it can do the businesses of unsecured creditors who are not party to the setting up of the pre-pack administration, compared with experiences of customers going through a regular administration. But having been on the wrong side of one I will probably never be won round to seeing them as a good thing.
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merlin
Minor shareholder in Assetz and many other companies.
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Post by merlin on Jan 27, 2014 10:37:02 GMT
Whilst I do not know anything more than AC have published regarding this offer, I have had some experience of being on the receiving end of a two pre-packs. In both instances had the businesses gone into a normal administration all creditors would have ended up much worse off. So the administrators took the line that restructuring under the old management was the sensible road to go down. In both instances we lost money but the businesses survived and made it back to good health. My business continues to trade with them. However in both instances initially we were rather on the heavy side when it came to giving them credit.
Quite a lot of pre-packs that I am aware of have involved property that has lost value and against which banks have not been happy to continue lending. AC had possibly a good example of this type of problem with the Leeds Property of a couple of months back but in that case the bank wrote off a big chunk of debt. Clearly any administrator is going to have a very good look at a proposal for a phoenix type of restructuring and will examine the business case/model to ensure mistakes of the past wont be repeated and that there is a very strong argument to do a pre-pack. After all if he is proved wrong in granting a pre-pack he is most likely to loose his/her licence to operate as an Insolvency Practitioner.
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j
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Post by j on Jan 27, 2014 14:07:20 GMT
Mark Wardrop is our Operations Director and is also JIEB qualified meaning he is an Insolvency Practitioner. I will ask him to write a piece on pre-packs and why they are not necessarily a bad thing. Essentially, they preserve jobs, which generates tax income for HMG, a trading business generates VAT income and also a profitable business generates corporation tax income. HMG would rather this happens and the tax take continues as it lessens the impact on the wider economy. I'm also fairly certain that the major creditors have to agree to the pre-pack taking place, especially when legal charges are in place. Thank you Andrew, that would be very a very useful educational tool. The main issues are whether this situation was arrived at out of carelessness of the same management team that would take over the new company or misguided by another party's advice. Also, whether ALL creditors, big & small, have been treated fairly throughout.
We'll await the full report
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Post by andrewholgate on Jan 27, 2014 14:33:27 GMT
There are some people who take advantage of the system to exploit it to their own gain. We know how those trying this work and as an ethical lender I would not deal with a business who is manipulating the system to that end. If there is an honest story then I am happy to work with them.
Just a point to note, an administrator works for the creditors, not the business he is running. He has to do a deal that ensures the creditors get the best return. If the pre-pack is the best deal then that is the one he will choose.
A
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JamesFrance
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Post by JamesFrance on Jan 27, 2014 16:17:47 GMT
My understanding is that in a Pre Pack the administrator acts instantly and the creditors are presented with a fait accompli. In other words they are not consulted prior to completion of the deal to give the existing shareholders their failed business back. Even without this arrangement there are many classes of preferential creditors and suppliers are always last in the queue and normally end up with a few pence at best.
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merlin
Minor shareholder in Assetz and many other companies.
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Post by merlin on Jan 27, 2014 17:19:59 GMT
My understanding is that in a Pre Pack the administrator acts instantly and the creditors are presented with a fait accompli. In other words they are not consulted prior to completion of the deal to give the existing shareholders their failed business back. Even without this arrangement there are many classes of preferential creditors and suppliers are always last in the queue and normally end up with a few pence at best. You are right but remember the administrator works according to the legal pecking order which I believe is set down either in the Companies Act or in another state endorsed instrument. In all cases as far as I am aware it is always the ordinary shareholders who are last in the queue with the trade creditors immediately ahead of them. This can also raise some interesting moral issues in a Pre Pack as far as the ordinary shareholders are concerned, as in most instances the original directors of the business only hold ordinary shares, so in most instances of insolvency they are not likely to get a penny. So where does the money come from to refloat the business, etc., etc.?
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bugs4me
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Post by bugs4me on Jan 27, 2014 17:45:18 GMT
My understanding is that in a Pre Pack the administrator acts instantly and the creditors are presented with a fait accompli. In other words they are not consulted prior to completion of the deal to give the existing shareholders their failed business back. Even without this arrangement there are many classes of preferential creditors and suppliers are always last in the queue and normally end up with a few pence at best. You are right but remember the administrator works according to the legal pecking order which I believe is set down either in the Companies Act or in another state endorsed instrument. In all cases as far as I am aware it is always the ordinary shareholders who are last in the queue with the trade creditors immediately ahead of them. This can also raise some interesting moral issues in a Pre Pack as far as the ordinary shareholders are concerned, as in most instances the original directors of the business only hold ordinary shares, so in most instances of insolvency they are not likely to get a penny. So where does the money come from to refloat the business, etc., etc.? Think more will be revealed once all the documents are up. Not suggesting for one moment that a pre-pack was not the way to go but I'd like a little bit more of the history and future plans.
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Post by wilma on Jan 27, 2014 22:51:16 GMT
Yes, Prepacks have a bad name, and in many cases with good reason, but not all pre packs are bad. The Yorkshire leisure operator had been trading successfully for 20 years before the company faced a triple whammy; the fated Burger King project was launched; the credit crunch crippled the trade; the management changed their business model to become landlords renting out the facilitates, rather than being operators. It was an error of judgement and they paid the price. With plummeting revenues the company could never afford the bank repayments. The choices were to let the business fold, or to take the pragmatic option of negotiating a massive reduction in the debt to the bank, to allow a potentially good business to trade its way back to health. That is the option we are asking lenders to look at when the auction starts. Happy bidding...
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andy2001
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Post by andy2001 on Jan 27, 2014 23:36:02 GMT
That is the option we are asking lenders to look at when the auction starts. Happy bidding... Are you a representative of Assetz Capital as the highlighted sentence seems to imply this but you're not listed as a representative of Assetz.
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Post by mrclondon on Jan 27, 2014 23:51:41 GMT
That is the option we are asking lenders to look at when the auction starts. Happy bidding... Are you a representative of Assetz Capital as the highlighted sentence seems to imply this but you're not listed as a representative of Assetz. [Admin hat on] wilma is a loan introducer to both Assetz Capital and other P2B platforms. I'm currently consulting with the rest of the mod team as to the best way of identifying such individuals ... we already have another similiar case which is not currently ideally flagged either.
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