Furniture creditors to benefit as pre-pack administration rules get a makeover

2nd January | legal | Furniture manufacturers and component suppliers who are owed money may be given more advanced notice of their customer’s impending failure under new laws governing the practice of ‘pre-packaging’ administrations.

The new legislation, which came into force yesterday, will make it mandatory that administrators disclose detailed information to creditors before and after a pre-packaged administration. In a pre-pack, a company is typically put into administration and swiftly bought out of it by new owners with reduced liabilities, such as, in the case of retailers, unprofitable stores or retail stock.

The crackdown makes it more difficult for insolvency practitioners to rapidly push through the sale of companies in administration, although in reality it simply sets in stone what is already regarded as best practice in relation to pre-packs.

As of yesterday, administrators have to disclose to creditors information including the source of their initial introduction and any connection between the purchaser and the directors, shareholders or secured creditors of the company.