The insolvency and debt teams at Pannone Corporate have featured highly in the latest Insolvencies and Companies List, according to the latest Solomonic Year in Review.

The teams ranked second in the top insolvency law firm list, based on the volume of claims issued in 2023. Collectively, 260 claims were issued by Pannone Corporate, ahead of the likes of Irwin Mitchell, Shoosmiths and Weightmans.

Daniel Clarke, insolvency and restructuring partner at Pannone, commented: “Given the current economic climate and the challenges facing businesses across England and Wales, it’s unsurprising to see such high volumes of claims going through the High Courts, with the Pannone teams contributing significantly to those claims numbers.”

Paul Jagger,  Head of Debt Recovery at Pannone, added: “We have invested in experienced and fresh talent to strengthen our proposition in both teams. This, coupled with our bespoke case management system, allows us to be perfectly placed to deal with high volume petitions, achieving excellent results for our clients.”

The annual High Court commercial litigation data report looks at key trends and analytics on the claims issued in the civil courts of England and Wales over a 12 month period.

In 2023, more than 7,500 claims were issued, with an 86% increase in insurance-related claims driven by aircraft leasing and Covid-related disputes.

The report states that ‘geopolitical, pandemic and economic events loomed large over English High Court litigation in 2023’, with winding up petitions continuing to drift upwards through most of the year, peaking in September.

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In the last three years, companies of all shapes and sizes have had to contend with a plethora of challenges that have severely tested the balance sheet and put a strain on even the best run businesses. Brexit, a global pandemic, geo-political tensions, a cost-of-living crisis, record inflation, rising interest rates, and crippling energy prices, have all been layered on top of each other to create a bruising trading environment for many.

The simple fact is, demand in certain sectors has fallen and is slowly recovering, the cost of business has shot up, and the job of getting things done has become more time consuming and onerous. It’s little wonder that a significant proportion of SMEs have accumulated considerable liabilities during this period and have reached the point where a different course of action is needed, in order to secure the long-term future of their business.

Step in, pre-pack administrations. Loved by some, loathed by others (namely creditors), pre-pack administrations haven’t always had the best reputation, because the sale of the business and assets is often completed before the creditors of the insolvent company are even aware of the administration.

Post-COVID, many predicted a resurgence in ‘pre-packs’, which has yet to materialise, but with much of the Government support brought on by the pandemic now at an end, the restructuring tool remains a viable and useful mechanism for securing the future of those businesses that are fundamentally sound, but have been weighed down by debt and outstanding liabilities.

So what are ‘pre-packs’ and how can they help businesses looking to restructure? 

What is a pre-pack?

The term ‘pre-pack’ is used to describe the process whereby the business and assets of a company are sold, via administration, in an arrangement that is typically negotiated in advance of the company concerned formally entering into an insolvency process. The buying party is often (but not always) connected to the company (e.g. a new company formed by the existing directors of the company in administration).

Essentially, the process allows a valid business to survive whilst relieving it of creditor pressure but also ensuring that its assets are realised for proper value. It’s the latter aspect of that equation that has been an area of concern for some and which reforms brought in two years ago were focused upon – tightening up regulatory intervention and introducing more accountability.

When is a pre-pack appropriate?

‘Pre-packs’ can be a really effective tool for all concerned when they’re used in the right way. Typically, they’re used where a company has a good underlying business but is struggling to meet its ongoing liabilities – it’s not uncommon for there to be an imminent threat of, for example, a winding up petition, or a cessation of supplies/services which would damage the business.

Administered properly, pre-pack administrations create a virtually seamless transfer of business and assets from the insolvent company to the purchaser. This can have significant benefits for the majority of stakeholders involved, because it allows for a high level of continuity. The business can continue trading under the same name (subject to compliance with section 216 of the Insolvency Act and its associated provisions), often from the same premises, and with the same staff. This means that the underlying business retains value, which is ultimately good news for all involved (especially when compared to the potential outcome, for example, in a liquidation). For those reasons, where they are viable, ‘pre-packs’ have always appealed to struggling businesses.

During the COVID-19 pandemic, the Government put in place a significant number of measures to support businesses, including those in the Corporate Insolvency and Governance Act, aimed at protecting businesses during the pandemic, providing much-needed respite for struggling companies. Those protections and safeguarding measures have now largely gone, leaving many businesses still exposed to the economic headwinds, which is where pre-pack administrations can play a part.

Key considerations

There are a number of important questions to ask and considerations to be made when exploring the option of pre-pack administrations.

Pre-pack administrations have a valid part to play in securing the long-term future of businesses, but there is a lot to consider before going down the route of a ‘pre-pack’. Now is the time to go through your options, taking into account the future economic outlook. With interest rates and energy bills still creating significant ongoing liabilities for companies, which will not necessarily be taken away by a pre-pack administration, it may pay to wait for the waters to calm before embarking on your ‘pre-pack’ journey.

If you’d like to discuss the blog in more detail, contact me on  (0) 7920 237687 or email daniel.clarke@pannonecorporate.com

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