• About Us
• Meet The Team
• Factoring Services
• Insolvency Services
• CVA
• Pre Pack

Pre Pack Receivership Controversy

Contact the UK’s Leading Experts in Business Recovery Today...

One of the areas of receivership that has created quite a stir and is now open to much scrutiny by both the government and consumer advocates is pre pack receivership. In order to understand how this is so controversial, you would first need to understand administrative receivership. Receivership is actually set up to protect a creditor's investment. The business takes out a loan, often a mortgage or other secured loan, with the intent of making timely payments until the debt is satisfied. Unfortunately, things happen along the way and at some point the business might not be able to make the payments.

At this point the creditor files for bankruptcy receivership and takes on both the running of the company as well as administration of the company's assets. Pre pack receivership allows the administrative receiver to arrange selling assets immediately upon entering into receivership. Most often these assets are sold to directors or managers of the company. This is why it has come under close scrutiny. It can appear to be that business goes on as usual, bypassing the creditors altogether.

The advantages of pre pack receivership are that the employees, for the most part, can continue working and the business will go on as usual, but with different owners. Now then, what happens if the same directors who caused the downfall of the business are allowed to step in and buy the business? Is there any wrongdoing involved here? This is just one of the areas being looked at and recent rulings have made guidelines very clear. Yes, it is great for the goodwill of the employees and the business' clients, but does it give businesses unfair advantage over creditors? That is yet to be seen. The most recent legislation of 2009 was meant to assist Insolvency Practitioners in pre pack administration, but there is still quite a bit of controversy surrounding the whole issue.

Find out more...