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Insolvency Law

Expert guidance on all aspects of corporate and personal insolvency

22 MAY 2009

Judicial Consideration of Hive Downs, sorry Pre-Packs: In the matter of Kayley Vending Ltd [2009] EWHC 904 (Ch), HHJ Cooke

Dr Sandra Frisby's work for R3 on pre-pack administrations has received judicial consideration in a recent judgment (27 February 2009) of HHJ Cooke in the Birmingham District Registry. In the matter of Kayley Vending Ltd [2009] EWHC 904 (Ch) contains a judicial analysis of the pre-pack 'phenomenon' and in particular the new SIP 16. As HHJ Cooke observes:

"The purpose of the extended consideration has been to respond to the invitation made by Mr Morgan to give some guidance to the profession as to the approach of the Court to what have come to be called 'pre-pack' administration applications, in the light of the recently promulgated Statement of Insolvency Practice 16 entitled "Pre-Packaged Sales in Administrations".

The case will be of immense interest to IPs and the wider public, not least because of the recent widely reported comments of the House of Commons' Business and Enterprise Committee. In paragraph 6 of his judgment HHJ Cooke sets out the positive aspects of pre-packs. He notes:

"...The principal advantages of a pre-pack are well-known; they are that the process enables a business to be sold quickly, with the minimum possible adverse impact from either the public knowledge of its insolvency or the restrictions imposed by the insolvency process itself. Employees can be retained who might leave, or have to be dismissed, once a formal insolvency starts. Continuity of customer and supplier contracts can be maintained. Even if a going concern sale might be achieved by an administrator, the period of trading in administration whilst it is negotiated requires to be funded and may in any event result in a damaging leaching away of business."

At paragraph 11 he then provides an exposition of the negative side of pre-packs particularly in relation to general creditors. He observes:

"i) it may not achieve the best price for the assets
ii) credit may be incurred inappropriately in the pre-appointment period
iii) they are deprived of the opportunity to influence the transaction before it takes place, and
iv) having been presented with a fait accompli, they have insufficient information to make it worthwhile investigating and challenging the decisions taken."

This judgment will be mulled on with great interest by members of the IP and legal professions.

Enjoy it in full here.

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