Vol 7 (2010) - Issue 5

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Corporate Rescue: An Assessment of the ‘Pre-Packaged’ Administration

Introduction
The implementation of the Enterprise Act 2002 (EA 2002) brought about considerable changes to the Insolvency Act 1986 (IA 1986) rescue procedures available to financially troubled companies in the United Kingdom. The Act significantly reduced the availability of administrative receivership as a procedure,1 whilst instead permitting the out-of-court appointment of an administrator, which notably can be carried out by the holder of a qualifying floating charge. As a consequence the use of administration has substantially increased. This may in turn account for the growth in what has been dubbed the 'pre-pack' administration. Although the procedure existed for some years prior to the EA 2002, it is now believed that fifty per cent of all administrations are conducted as pre-packs. Some high-profile examples include MFI, The Officers Club and Whittard of Chelsea.
A pre-pack administration involves a company entering into administration having previously agreed to sell the business (or part of it). Once the administrator is appointed, he does 'little more than to execute the sale agreement to the buyers.' The process is largely informal, extremely quick and the creditors are not usually involved in the decisions made. This differs from the regular administration process whereby following his appointment, the administrator takes over the management of the business with the primary objective of rescuing the company as a going concern. He is required to present a statement of proposals within eight weeks of his appointment and usually conduct a creditors meeting within ten weeks. This appears to be a much lengthier process with many formal statutory constraints imposed on the administrator.
This article seeks to analyse the pre-pack process and make some suggestions for reform. The first section will set out the benefits and criticisms of the procedure. The second section will critically analyse the law and regulation in this area. The final section will suggest possible alternatives and reform.