The term “pre-pack” can have different meanings in different jurisdictions but its essence is that before an insolvency process occurs – whether that be receivership, liquidation or examinership – the buyer/investor has been identified and the commercial and legal terms negotiated to a conclusion, thereby enabling the deal to be completed immediately or closely following the appointment of the insolvency office holder, and without interruption to the trading activity of the target company.
The usage of pre-pack insolvency sales is less developed in Ireland than in other jurisdictions, but there has been an increasing number of asset sales structured through pre-pack receiverships over the last year. The most recent successful example was the sale of the A-Wear retail chain by its receiver Jim Luby of McStay Luby. 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 this market.
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 (SIP 16, Statement of Insolvency Practice) The UK Government recently announced its decision not to intervene with prescriptive legislation in this area.
In Ireland there are no corresponding rules or guidelines in general usage, although some insolvency professionals follow the SIP 16 guidelines. In the absence of detailed rules, the critical standard for the appointed insolvency office holder is to ensure that he obtains the best price possible 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 the concerns of creditors.
There has been some debate in Ireland as to whether an examinership process can be used to implement a pre-pack restructuring. Again there is no reason why the terms of a restructuring and of any necessary investment cannot be agreed before a company files for examinership, which can then be implemented through the examinership process. The statutory requirements to hold formal meetings of members and creditors and to obtain High Court confirmation of the scheme of arrangement cannot be dispensed with, although the timeframe for following these processes can be shortened. Most importantly, the High Court recently emphasised that no matter what amount of negotiation has taken place with investors prior to the filing for examinership, it will always be the duty of the examiner to ensure that the deal he recommends to creditors and the court is the best deal available for the company and its members and creditors. This in turn necessitates the examiner unearthing all prospective investors and may mean that the investor identified before the company enters examinership will not necessarily be the successful investor after the examiner has followed his process.
Because of the absence of formal reporting requirements for pre-packs, there are no hard statistics available on its usage in Ireland. Anecdotal evidence suggests that the process is being increasingly used and 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, can avail of pre-packs in Ireland.
Contributed by Michael Quinn.
