Conceptof the corporate rescue:There arevarious approved rescue models even though, each one of these owns a differentcorporate rescue identification, having identical concepts, rules andprinciples. This is mandatory to understand that how a legal system deals witha financially distressed company before obliging the basis of corporate rescue.Mainly, the substance of the rescue model that has took place in a respectivecountry based on the historical legal advancement1.The motiveof corporate insolvency holds many characteristics, most aimed to produceopportunities for action in favor of the distressed company instead of doingnothing and keep waiting for the consequences2.It is that kind of system which require the involvement of all the organs ofthe distressed company to figure out when action should be taken, and whichoption is to be picked up in the given circumstances.
Rescue models strive tobe linked with the distressed company to play a positive role. Relevantprocedures which are used to give a helping hand to a distressed company incorporate rescue are;(a) Companyvoluntarily arrangement(b) Administration(c) Schemeof arrangement (d) AdministrativereceivershipAnydistressed or struggling company may use above mentioned procedures to get away out from the problem and these are effective too. On the other hand, the companyvoluntarily arrangement and administration are the two-main procedures forrescuing a distressed company. The cork committee was established to analyzethese two recuing procedures and to make recommendations accordingly3.
What is pre-pack sale:A pre-packsale is an intimate practice which grew up through the legal practice andadvanced in the administration process. The fact is that when theadministration process is initiated then it reflects as the concluding stage ofthe procedure because it is considered that the all the essential moves andarrangement has been made before starting off the insolvency process following puttingforward the name of an administrator. By this ‘anticipatory action,4the distressed company makes itself able to get advice from the insolvencypractitioner, in order to sort out with its major creditors to sell the assetsof the distressed company completely or partially to a potential buyer and to savethe business of the distressed company. The main point of the UK pre-pack is thatit only saves the business not the company, but my viewpoint says about this isthat to save the business should be the prime thing. UK insolvency process hasaccepted the pre-packaged administration and during past ten years this practicehas gained the popularity and the reason behind is its beyond doubt benefits5.
As, all the formalities have been done between company and its creditors (itcomprises of prime creditors) prior to the administrator’s taking over whichresulted in the form of taking very short time to reach to its final deal.6As, the time and cost are directly proportional to each other so, this processsaves a lot of money apart from time saving. A researchstatistic shows that almost in 70 percent cases the insolvency practitioner hadgone with the pre-packs sale as it provide massive returns to the creditors ifcompared to the rest of business sales7.
Significance of Enterprise Act 2002on UK PRE-PACK:The practiceof pre-packs uplifted by the Enterprise Act 2002. The management of thedistressed company and preferential creditors have got the option to appointthe administrator and then all the responsibility lies on the shoulder of thatappointed administrator so that he or she can maintain the process of pre-packs8.During the process, creditors are not authorized to impede to recover the debtsand the administrator has got the option to choose any method or scheme for thedistressed company and the administrator is required to keep that scheme to presentin the creditors meeting for the approval of it.Goals of Regulations:UK pre-packssale emphasis on three aims which are: (a) Togive a helping hand to a distressed company as a going concern (the administratoraims to save the entity instead of the company’s assets)(b) Toproduce a good result for the creditors of the distressed company (moresuitable when the company would be in a position of liquidation)(c) Toget as much as the administrator can to give out to secured creditors9.Required protection has been granted to the creditors by the EnterpriseAct 2002 by emphasis this point to give back to the preferential creditors.The occurrence of the process held confidentially wile, primecreditors might be given a chance to observe the process. The administrator isappointed out of court process by the existing management of the distressedcompany and if the administrator thinksthat the only better option is to sell the assets of the company then the administratoris not required to seek permission from the creditors to do so as, it is statedin a case law namely, Re Trans BusInternational LTD and the elaboration of the decision in this case showsthat the administrator is not liable to seek permission from the creditors inorder to sell the assets of the company but if, courts directed theadministrator then the administrator is liable to get those directions10. In the UK, pre-packs sale the administratortries to locate a potential buyer to whom the administrator could sell theassets of the company without facing any intervene by other potential buyers aswell as the creditors of the distressed company.
The question relating to thecreditors of the distressed company is addressed by the law makers and the courtsthat if it is taken wrongfully that the administrator is trying to produce themaximum for the creditors in the form of repayment. However, it is denouncedthat by keeping in mind that in the absence of any market the pricing will notbe certain. This thinking produces two main points first, there is no suretythat the absence of any competition would keep down the price but there is asurety of this that it will never help in keeping the price up. Secondly, thefocus of the administrator will be on keeping the liquidation of the distressedcompany on the fast track which might results in the discount of the prices ofthe assets of the distressed company and to keep firm the eventual buyer11.Discretion of administrator and theObjective of Rescue:The improvedadministration process by the Enterprise Act 2002 has required from theadministrator some objectives to be achieved in order of preferences, initiatingthe rescue process of the distress company as a going concern.
While, it isvery hard to see that the administration will prepare the way for the actualrescue of the distressed company12. It is an essential for the administratorto focus on the first objective which lead the administrator towards bringingback the company. However, here pre-packs faces a issue which is that theadministrator is usually connected with before his or her appointment as anadministrator and usually the final price of the sale has already been settledwith the potential buyer and after the appointment of the administrator thisdeal is carried out quickly. Although, this process provide with an instantsolution to a financially struggling company and whose organs wishes it to besaved, but there is anxiety that if the current condition of the distressedcompany is publicized then it may create hurdles in the way of progress of thecompany13.
Furthermore, the choice goes in the favor of secured creditors as it permitsthem to take part in the process and make sure that they discuss terms of asecured term. However, the position is not the same for the unsecuredcreditors. The basic characteristic which is linked with the pre-packs strategythat the distressed company is finding only one way unaccompanied theconsultation of all its creditors14.1 H.Hansmann and R. Kraakman, ‘The End of Historyfor Corporate Law’, in J.
Gordanand M. Roe, (eds), Convergence and persistencein corporate Governance, (Cambridge: CUP, 2004), p.33.
2 V.Finch, ‘Corporate Insolvency Law:Perspective and Principles’, (Cambridge: CUP, 2002), p. 125.3 R.Perry, ‘Corporate Rescue’, Pub.
(2008).4 S.Harris, ‘The Decision to Pre-Pack’ 2004 Recovery (Winter) 26,26.5 PWalton,’ pre-packaged administrations- trick or treat?’ 2006 InsolvencyIntelligence 113,116.
6 PWalton,’ pre-packaged administrations- trick or treat?’ 2006 InsolvencyIntelligence 113,116.7R3, ‘Pre-packs’ and SIP 16′( www.r3.org.uk2010) uk/media/documents/policy/policy_papers/corporate_insolvency/pre_packs_and_SIP_16_March_2010.pdf.accessed21 February2013.8 A.Kastrinou,’European Corporate Insolvency Law: Ananalysis of the corporate rescue laws of France, Greece and the UK’ , Universityof Leicester, December,2006. 9J.S Moore & V.P Slusher, ‘Bankruptcycode section 363 sales: Trends and opportunities’, 2007 No. 9 Norton Bankr.L. Adviser10 In re Trans bus International Ltd 20041 W. L.R. 2654 (cd).11S.Davis QC, ‘Pre-pack He Who Pays thePiper calls the tune,’ Recovery, summer 2006.12S.Frisby ‘ Report on Insolvency Outcomes’,(2006)13 M.Ellis,The Thin Line In The Sand Pre-Packs and Phoenixes’, Recovery, (Spring 2006), p. 314V. Finch, ‘Pre-Packaged Administrations: Bargains in the shadow of Insolvencyor Shadowy Bargains’, Journal of Business law, (2006), p50.
uk/media/documents/policy/policy_papers/corporate_insolvency/pre_packs_and_SIP_16_March_2010.pdf.accessed21 February2013.8 A.Kastrinou,’European Corporate Insolvency Law: Ananalysis of the corporate rescue laws of France, Greece and the UK’ , Universityof Leicester, December,2006.
9J.S Moore & V.P Slusher, ‘Bankruptcycode section 363 sales: Trends and opportunities’, 2007 No.
9 Norton Bankr.L. Adviser10 In re Trans bus International Ltd 20041 W.
L.R. 2654 (cd).11S.Davis QC, ‘Pre-pack He Who Pays thePiper calls the tune,’ Recovery, summer 2006.12S.Frisby ‘ Report on Insolvency Outcomes’,(2006)13 M.Ellis,The Thin Line In The Sand Pre-Packs and Phoenixes’, Recovery, (Spring 2006), p.
314V. Finch, ‘Pre-Packaged Administrations: Bargains in the shadow of Insolvencyor Shadowy Bargains’, Journal of Business law, (2006), p50.