Published: 3rd December 2008
The deals happen when a company goes into administration having already agreed a sale and emerges in new hands almost immediately.
Bob Young, a partner at the Stoke-on-Trent office of Begbies Traynor, says he understands the concerns of those who argue that the best price may not be obtained for creditors under such arrangements.
But often professionals have virtually no choice, he argues.
They often find themselves in a dilemma, and Mr Young cites the recent administration of estate agents Heywoods Homes and Property as a prime example.
The 120-year-old firm was put into administration on October 31 owing several thousand pounds and Begbies Traynor had to act quickly.
A string of branches were shut with only the head office in Newcastle-under-Lyme left open.
Subsequently, the assets were sold back to managing director Chris Stops.
Pre-packed deals often happen when the nature of the company means the administrator must move fast or risk there being nothing left to sell as customers switch in droves.
But they are controversial because frequently it is the previous owner who makes the purchase, and for very much less than the business was once worth, leaving creditors feeling aggrieved.
The alternative is to put a business on the market and advertise it for sale.
This is what happened in the case of Heywoods albeit in the end it showed many of the characteristics of a pre-pack administration.
“I thought it was right in this case to expose it to the market but rival estate agents moved to poach work and I had to make a sale after two weeks,” said Mr Young.
And the former operators were best placed to agree the transaction.
Trading a company on and looking to sort out the problem areas, all while looking for a buyer, used to be the established approach.
“We would go in, cut out the cancer and make it fit for sale,” said Mr Young.
Bob Young is senior partner at Begbies Traynor in Stoke-on-Trent, a fellow of the Insolvency Practitioners Association (FIPA) and a member of the Association of Business Recovery Professionals (MABRP) - and has over 30 years' experience of corporate rescue and recovery, turnaround and corporate and personal insolvency work. Formerly a partner in Poppleton & Appleby, a director of PricewaterhouseCoopers and Official Receiver in Birmingham, Bob has built up a substantial following in Staffordshire and beyond, and he chairs the North Staffordshire Chamber of Commerce Business & Finance Committee.