The recent sale of the bulk of Connaught's failed social housing group has received a lot of positive press attention of late, due largely to the number of jobs the deal is reported to have saved.
The sale appears to have occurred within days of Connaught going into administration. While there has been no suggestion that the deal was effected as a "pre-pack", the speed with which the sale was carried out echoes the most prominent feature of true pre-pack deals.
Pre-packs are often subject to negative publicity. Because they are, by their very nature, necessarily discreet, they are often criticised in the press as surreptitious and underhand. However pre-packs can be a very effective means (and can often be the only means) of saving the business and jobs of those employed in that business. While the Connaught deal may not have been a true pre-pack, the similarities it shared with such a deal invites a re-evaluation of this often-criticised insolvency tool.
A pre-pack involves the concluding of an agreement for the sale of the business of an insolvent company in advance of the commencement of the formal administration process. Upon such commencement (or very shortly thereafter), the agreement becomes effective. Accordingly, the business and assets are not fully exposed to the open market prior to being sold. While this may invite a degree of cynicism towards pre-pack deals generally, in practice, a pre-pack does not differ greatly in many respects from the more conventional sale of a business arranged after the commencement of administration. Indeed, a pre-pack may hold numerous advantages over a standard insolvency sale process.
Research has shown that pre-pack sales are more likely to result in full workforce retention and do, on average, obtain higher returns for both secured and unsecured creditors when compared to standard insolvency sales.
The recent Connaught deal, while perhaps not strictly a pre-pack deal, did share many of the characteristics of the much-maligned insolvency tool. Nevertheless, the deal attracted considerable positive attention. Accordingly, it is hoped that true pre-pack deals, capable of delivering equal if not better results, receive similar commendation in the future - not the condemnation to which they've become accustomed.
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