Pre-packs and insolvency tourism: the Government view
"Pre-packs are not the problem; the problem is the insolvency."
So said Lord Drayson, The Minister of State, Department for Business, Innovation and Skills, in a House of Lords debate on Thursday 11 March 2010. He was responding to a question, prompted by the Wind Hellas case and concern about insolvency tourism, asking what action the Government will take:
"to prevent foreign companies using "pre-pack" insolvency laws to avoid debts."
Lord Drayson also said:
"Independent studies by the World Bank have shown that the United Kingdom's insolvency framework is highly regarded - above above that of the United States, Germany and France - particularly on the basis of its protection to creditors, the costs of proceedings and the speed with which the process is able to be carried out."
and:
"The important advantage of a pre-pack, particularly in people-type businesses such as an advertising agency or a football club, is that in a difficult insolvency situation it enables the value of the business and, most particularly, the jobs to be retained. Up to 91 per cent of pre-packs lead to a situation where all the jobs in that business are preserved."
Perhaps with the Government making these points clearly it will become more widely accepted that pre-packs are a useful mechanism for preserving value when a company has become insolvent and that the UK's flexible and constructive insolvency regime is well suited to the rescue of business.
Comments (1) Read through and enter the discussion with the form at the end
Great article Chris, thank you. I had never heard of "insolvency tourism". Makes you wonder though...if the UK system is highly regarded by the US, then why do some people refer to the Enterprise Act as an "Americanisation" of UK insolvency procedures? I have heard two lecturers refer to this.