Nimmo in favour of 'pre-pack' insolvencies

Published on Sunday 15 November 2009 21:14

ONE of Scotland's most high-profile corporate insolvency practitioners today mounted a defence of "pre-packs", in which a buyer is found for part of a firm before it enters administration.

Blair Nimmo, senior partner in accountancy firm KPMG's Edinburgh office, hit back at criticism of pre-packs, which have been accused of leaving suppliers and other creditors in the lurch when a company appears to be reborn after shedding some or all of its debts.

Nimmo said that pre-packs were "one important way of getting businesses back on track", highlighting recent cases involving the Whittards of Chelsea and Officers Club chains and Sir Tom Hunter's designer clothing firm USC.

Nimmo's comments came after the Office for Fair Trading (OFT) last week launched an inquiry into the corporate insolvency market amid claims that fees charged by insolvency practitioners were too high when compared with other countries.

Nimmo said: "It must be remembered that, when companies are placed into administration, they are already insolvent and administrators act under court supervision.

"Pre-pack administrations ensure minimal employee, customer and supplier uncertainty and disruption, compared with a period of marketing the business by the administrator.

"There is therefore a much higher chance of selling the business at the optimum price, securing the best possible outcome for creditors – and doing so without extensive, or indeed in many cases, any, job losses."

Nimmo added that recent regulatory changes had sought to prevent unscrupulous directors from using pre-packs as a "quick escape" to ditch debt and create a "phoenix" firm to rise from the ashes of administration.

He said creditors were often consulted before pre-pack administrations were used.

KPMG said more than 4,500 firms fell into administration last year, with 2,000 faltering in the final quarter as retailers dealt with the Christmas rush.

The OFT is investigating whether enough money is recovered for creditors and whether any changes need to be made to the market in the UK.

The watchdog expects to complete its inquiry by the end of next year.

Critics have highlighted the fees earned by insolvency practitioners when firms fall into administration or liquidation – fees that trade body R3 said were justified because of the "high level" of service offered.

At the top of the scale, accountancy firm PricewaterhouseCoopers earned 100 million in fees working on the Lehman Brothers case, the largest administration in history.

Rival firm Deloitte has reportedly earned more than 3.8m through the liquidation of Woolworths. Figures from R3 put the hourly fee of a "high street" firm at about 200.