The recent CVA reform consultation has now ended. Some responses, which have been appearing in the media, have referred to pre-packaged administration, and the supposed ills of that phenomena. Whether or not pre-packs are a good thing is a matter of some debate. I offer here a defence of pre-packs by reference to ice-cream. A hypothetical ice-cream company runs into financial difficulty. If an ice-cream business, or its administrator, does not sell the goods the business owns pretty quickly they will melt and be worthless. A similar catastrophic value reduction can be seen with newspaper rounds. If a newspaper business suffers a liquidity problem, the paper round itself can be sold on. If papers are not delivered, the value of the round drops rapidly due to customer dissatisfaction. In the case of both ice-cream sellers and paper rounds decisive action is required before value is lost. This timeliness point is the essential crux of why pre-packs offer some beneficial armoury in the arsenal of the modern IP.
It is against this backdrop that we can consider the various rescue procedures in a spectrum of use. First, the CVA enables a corporate vehicle to be retained. Tax breaks can acrrue and the benefits in continuing the reputation of the company are advantageous. Administration with a pre-pack can be used to facilitate the sale of business in a situation where, as with ice-cream, value can be retained by a quick sale. You are in essence saving the business (trading style and such like) but not the company. Administration can also be used as a method for recycling the business assets or for trading a business. Liquidation operates as a mechanism for the reassessment and revaluation of the business. Any reform should have in mind the outcomes which are sought and which can be obtained through the current IA86 procedures.
Picture Credit: http://www.iansicecream.com.au/flake.jpg
Comments