No more phoenix firms; Government wants end to pre-packs

7th May 2009 | law | Pre-pack administrations like the one orchestrated by the management of MFI months before its fatal collapse should be outlawed, according to a Government business and enterprise committee.

It warns the rise of ‘phoenix’ firms, which emerge free of debt after an agreement is made by insolvency practitioners and management, are potentially damaging to the economy because of the effect on unsecured creditors, who often end up getting less cash than they would otherwise have gained should a firm have entered a standard administration process.

Pre-packs are a divisive topic. Those in favour pointing to the aid it affords businesses in surviving financial difficulty and retaining jobs, while naysayers believe it is a way of cheating the system and unfairly becoming debt free.

In the furniture industry, landlords are usually the biggest losers when a pre-packaged administration takes place, as management cherry picks stronger performing stores.

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