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Pre-Pack Insolvency Sales

May 1, 2012

The term “pre-pack”, as it relates to insolvency sales, can have different meanings in different jurisdictions. In essence it refers to a sale of a distressed company or asset where the purchaser or investor has been identified and the terms of the sale have been fully negotiated before an insolvency process occurs. The advantage to the “pre-pack” structure is that the sale can be completed immediately upon or closely after the appointment of the insolvency office holder and, critically, without material interruption to the trading activity of the target company or asset.

In Ireland an insolvency process can mean a receivership, liquidation or an examinership. While there is effectively no reason why a liquidation or examinership process cannot be used to implement a pre-pack restructuring, typically such sales are implemented through receiverships.

There are no rules or guidelines in place in this jurisdiction to govern the conduct of pre-pack sales. In other jurisdictions, most notably the UK, detailed guidelines for the conduct of pre-packs have been adopted by professional bodies and approved by regulators. Prudent insolvency professionals in Ireland will often follow the UK guidelines.

In the absence of rules, the critical standard for the appointed insolvency office holder is to ensure that he obtains the best price obtainable for the assets at the time of sale. Provided the insolvency office holder complies with this test and adheres to the highest professional standards, there is no barrier to effecting a pre-pack sale in a manner which will stand up to scrutiny and which will allay any concerns of creditors. 

While the use of pre-packs is less developed in Ireland than in other jurisdictions, the last year has seen an increasing number of asset sales structured through pre-pack receiverships. The most recent successful example was the sale of the A-Wear retail chain by its receiver Jim Luby of McStay Luby. Prior to that, in July 2011, the Superquinn grocery chain was sold to Musgraves by its receivers Kieran Wallace and Eamonn Richardson of KPMG, in what was probably the largest ever pre-pack transaction in the Irish market. 

The absence of formal reporting requirements for pre-packs means there are no hard statistics available on the use of the process in Ireland. However, it is clear that investors looking for a speedy transaction with a view to preserving the value of a company’s goodwill and other assets are increasingly considering pre-packaged sales.

Contributed by Craig Sowman.

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