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Out With The Old; In With The Old


Posted At: 13 September 2013 00:00 AM
Related Categories: Administrations, Retailers


The recent news of Mostyns falling into administration for the second time less than a year after it was sold through a pre-pack deal, got the SnapShop team thinking about just how widely they have been used since the start of the financial crisis in 2008.

According to figures from the Insolvency Service, around a quarter of all administrations in 2011 were pre-packs. Around 85% of these were sold to parties, namely directors, already linked to the business.

Examples of retailers to use pre-pack deals over the past year include:

  • Dreams which was acquired by Sun European in March this year in a £35m deal
  • Internacionale was sold in a pre-pack deal to its former directors in July this year
  • Walmsley Furnishings fell into administration for the second time in 18 months in November 2012 after a previously negotiated pre-pack deal failed to revive the business
  • United Carpets was acquired by its holding company just hours after entering administration in October 2012
  • Town Centre Restaurants immediately completed a sale to its existing management following the appointment of Zolfo Cooper as administrator in June 2012

It’s no wonder pre-packs are now one of the most controversial topics in UK business, with Mostyns and Walmsley Furnishings mentioned above both failing again after undergoing a pre-pack administration, and Internacionale now asking for rent concessions from its landlords in an effort to keep stores open until Christmas.
Supporters say pre-packs are a quick rescue of the company, securing jobs and providing a boost to the economy. On the other hand, critics argue that pre-packs often allow incompetent directors to resurrect their business through a buy-back, effectively “stitching-up” unsecured creditors to the business who lose out in the end.

Whether good or bad, the usage of pre-packs is rife throughout not just the retail industry, but the UK as a whole. It remains to be seen if there are actually any advantages to a retailer of the process, especially if the company fails not once, but two, three or even four times before the directors admit defeat.

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The opinions expressed herein are the personal opinion of the author and are not intended as statements of fact and do not represent the view of SnapShop or Pragma in any way.


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