Insolvency adminstration pre pack
Before your financial advisors convince you to take the plunge we suggest you (and they) read this.
It’s an inevitable fact of life that the road haulage industry has been hard hit. Some of our unfortunate clients have been advised to put their companies into administration on the basis that this will enable some form of rescue courtesy of a ‘pre-pack’.
About pre-pack. If insolvency cannot be avoided, a sale agreement is negotiated prior to the insolvency and is completed immediately after, with minimum disruption to the actual business. Often the sale is to the same management team.
To the man on the street, creditors and the Traffic Commissioners such deals raise eyebrows and cause concern. Traffic Commissioners will look very carefully into the circumstances and arrangements to ensure that the new entity is not a front for the insolvent one and that the new entity has the means to meet the financial requirements in the long term.
The message here is to ensure your financial advisers, accountants and insolvency practitioners consult with specialist transport lawyers well before the button is pressed.
We have come across situations where the operator has needlessly got itself into bother because the administrators advised the new entity could carry on operating using the insolvent entity’s operator licence. It seems incredible to us but this advice is often given.
The Operator licensing system is based on trust. The practice of a new entity operating under the insolvent entity’s licence breaches that trust and is illegal. Such illegal act may also hamper the new entity obtaining an operator licence.
The other message is to plan well ahead. The new entity that is acquiring the assets of the insolvent entity ought to apply for a new operator licence as early as possible – at least 8 weeks (12 is better) prior to the completion of the sale. Administrators should consider applying to the Traffic Commissioner under specific rules for permission to continue to operate vehicles during the administration of the insolvent entity.
This is a complicated area and these matters need to be handled carefully. If handled correctly the prospects of getting a new licence and avoiding any interim breaches of the law are enhanced.
The moral here is to always plan well ahead and to ensure that you and your financial advisers take appropriate legal advice at the earliest opportunity.