Recent trade press reports Pre-pack administrations boosted by court decision – Accountancy Age and Pre-pack administration survives HMRC claim – Creditman refer to this case decided in March 2007.
The trigger was a press release by R3 (the Association of Business Recovery Professionals) quoting Dr Sandra Frisby, Baker & McKenzie Lecturer in Company and Commercial Law at Nottingham University, whose recent research into pre-packs (sponsored by R3) shows a significant increase in the use of pre-packs since the Enterprise Act 2002.
The judge rejected a claim by HMRC against the sale of DKLL Solicitors when DKLL made an application to the court to be placed into administration. This was to allow an immediate sale of the business to another (newly-formed) firm of solicitors, Drummonds Kirkwood LLP.
The judge said:
“I am particularly influenced by the fact that the proposed sale appears to be the only way of saving the jobs of the 50 odd employees of the partnership. The proposed sale is also likely to result in the affairs of the partnership’s clients being dealt with, with the minimum of disruption.”
Notably, the judge did not declare the pre-pack strategy unlawful, thus validating it as a legal rescue tool. Also importantly, the judge gave weight to the expertise and experience of impartial insolvency practitioners.