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Pre-packs and insolvency tourism: the Government view

"Pre-packs are not the problem; the problem is the insolvency."

So said Lord Drayson, The Minister of State, Department for Business, Innovation and Skills, in a House of Lords debate on Thursday 11 March 2010. He was responding to a question, prompted by the Wind Hellas case and concern about insolvency tourism, asking what action the Government will take:

"to prevent foreign companies using "pre-pack" insolvency laws to avoid debts." 

Lord Drayson also said:

"Independent studies by the World Bank have shown that the United Kingdom's insolvency framework is highly regarded - above above that of the United States, Germany and France - particularly on the basis of its protection to creditors, the costs of proceedings and the speed with which the process is able to be carried out."

and:

"The important advantage of a pre-pack, particularly in people-type businesses such as an advertising agency or a football club, is that in a difficult insolvency situation it enables the value of the business and, most particularly, the jobs to be retained. Up to 91 per cent of pre-packs lead to a situation where all the jobs in that business are preserved."

Perhaps with the Government making these points clearly it will become more widely accepted that pre-packs are a useful mechanism for preserving value when a company has become insolvent and that the UK's flexible and constructive insolvency regime is well suited to the rescue of business.

 

 

Date: 13th March, 2010
Author: Chris Laughton

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