Pre-packs gain court approval: DKLL Solicitors v HMRC
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:
The judgement is available in full here.
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.
The judgement is available in full here.
Great blog - good to see up to date comments.
I have what might be an interesting question! HMRC (PAYE) distrain approx 1 week before notice to Appoint Administrator. Three weeks later company in administration. HMRC consider they have secured creditor status; this leads to them being given priority over other (unsecured) creditors This, while being valid for other organisations appears to fall under Enterprise Act 2002; therefore not valid for HMRC. What do you think?
Regards and thanks
John
HMRC’s distraint could not be continued after the Notice of Intention to Appoint an Administrator was filed in Court. HMRC would be able to seek the administrator’s agreement or the leave of the Court to continue its distraint, but if the administrator needs the assets in question for the purpose of the administration, the Court will be unlikely to give that leave.
Glad you like the blog!