The Rise of the ‘Pre-Pack’: Corporate Restructuring in the UK and Proposals for Reform

Published in RP Austin and Fady JG Aoun (eds.), Restructuring Companies in Troubled Times: Director and Creditor Perspectives, 43-78. (Sydney: Ross Parsons Centre of Commercial, Corporate and Taxation Law, 2012)

31 Pages Posted: 27 Jun 2012  

John Armour

University of Oxford - Faculty of Law; University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Date Written: 2012

Abstract

The practice of corporate restructuring in the UK has recently been transformed. The early twenty-first century has seen a tendency for corporate debt structures to be more fragmented, making informal renegotiation much more difficult to coordinate in times of financial distress. This has increased the incidence of formal insolvency proceedings. However, trading partners tend to desert a business once it has entered formal proceedings, meaning it suffers a rapid loss of goodwill. Consequently, more value can often be realised for the business if formal proceedings are kept as short as possible. This has lead practitioners increasingly to implement ‘pre-packaged’ administration proceedings, whereby a sale of the debtor firm’s assets is agreed in principle prior to the appointment of the administrator. Whilst pre-packaged sales do minimise damage to the debtor’s goodwill, they also raise concerns about potential abuses, especially where the sale is to a connected party, such as the existing owner-managers. This paper reviews these developments and considers the legal protection available to unsecured creditors under the current law, as well as recent reform proposals considered by the UK's Insolvency Service. It is argued that each of these proposals has the potential to generate new costs of their own, and that effective protection could be given to unsecured creditors through a more straightforward disclosure mechanism drawn from the UK Takeover Code’s MBO provisions.

Keywords: insolvency law, corporate restructuring, administration, pre-packs

JEL Classification: G33, G34, K22

Suggested Citation

Armour, John, The Rise of the ‘Pre-Pack’: Corporate Restructuring in the UK and Proposals for Reform (2012). Published in RP Austin and Fady JG Aoun (eds.), Restructuring Companies in Troubled Times: Director and Creditor Perspectives, 43-78. (Sydney: Ross Parsons Centre of Commercial, Corporate and Taxation Law, 2012). Available at SSRN: https://ssrn.com/abstract=2093134

John Armour (Contact Author)

University of Oxford - Faculty of Law ( email )

Oriel College
Oxford, OX1 4EW
United Kingdom
+44 1865 286544 (Phone)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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