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News

Plans to introduce new legislative controls for pre-pack company sales have been abandoned by the government which has considered options for two years – a decision which has been welcomed by leading law firm Moore Blatch.

Partner Mark Osgood said the recent ministerial statement confirms that the current situation will remain in place, a move he said would help this country’s corporate recovery.

"We know that this method of company sale has been criticised in the past, particularly by unsecured creditors, and the government has been looking at ways to improve the transparency and confidence of pre-pack sales," he said.

"However the speed at which these transactions can be completed means that they minimise job losses and disruption to a business both of which are crucial in the current economic climate."

Pre-packs refer to the sale of all or part of a company's business which is negotiated prior to the company going into administration and then completed by the administrator shortly after his appointment. The valuable assets are bought, often by the existing directors, while the debts and loss-making assets are left behind. Creditors, staff and customers will often know nothing until the deal is done.

Mark cited recent pre-pack sales of Blacks, La Senza and property agents DTZ as examples of how transactions have been completed quickly to keep a business running in this way.

"There had been suggestions of introducing a cooling off period which would have enabled creditors to pursue outstanding debts. This in turn would jeopardise many deals as action by creditors potentially risks the sale and continuation of the company in the long term."
Mark said Moore Blatch welcomes the government’s decision that the current regulations are sufficient at this time and said it would enable more companies to look at this route for long term survival.

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