In a timely supplement to last week's Reverb article, Andy McCourt (pictured) looks at the growing attention being directed at the sort of laws that allowed February's GEON receivership and legal debt nullification, with a British parliamentary review tackling 'pre-pack' provisions.
A Parliamentary Committee in the UK will conduct a thorough review of the abuse of pre-packed administrations in late Northern Spring, it was has reported that by a leading UK publication, Accountancy Live.
It was reported in Print21 on 25 February that the KKRM attempt at placing GEON into administration and then buying all or some of it back from the receivers was a UK/US-style debt-wiping ‘pre-pack.’ It would now appear that legislation in the country that allowed pre-packs to flourish from the 2002 Enterprise Act, is now back-tracking due to massive abuse of the administration process.
Pre-packs have never been a prominent feature in ANZ insolvency practice, but the net effect has undoubtedly been achieved in the past, by using DOCAs -Deeds Of Company Arrangement. Not all pre-packs per se are negative; if properly conducted in consultation with creditors and other stakeholders, they can constructively save companies and preserve jobs. However, the temptation to totally wipe out due debts and staff entitlements and start afresh has, more often than not, proved too great for the pre-packers (some would say ‘phoenixers’).
In halting the KKRM-GEON pre-pack, Australia and New Zealand have established a landmark case for any future attempts both within and without the printing industry. With GEON, all the hallmarks of a pre-pack that would return little to creditors but make large sums for KKRM were apparent:
- KKRM was asked to provide emergency funding, reportedly $3 million, to keep GEON trading in February. It was declined.
- KKRM was in possession of a debt of approximately $92 million it had acquired at a heavy discount from bankers.
- KKRM as senior secured creditor called in the receivers to GEON Group companies, and followed this with an offer of repurchase.
- KKRM declined to pay past due GEON debts to paper suppliers in order to secure on-going paper supply. If these debts had been paid or guaranteed, paper supply would have been forthcoming.
- In post pre-pack failure comments, KKRM has indicated that, had it succeeded, plant closures and job losses would still have been implemented
Lord Younger, in announcing the review to the House of Lords on 13 March said:
“On the review issue surrounding continuation of supply to insolvent businesses, this is now the subject of a government amendment being debated shortly. We propose to consult on the issue prior to implementing reforms and I am satisfied that this will address the concerns in this area.”
KKRM via its Australian partner Allegro Funds was asked a series of questions to contribute to this article but has offered “no comment” to all.
The complete announcement from Accountancy Live can be read here.