BPIF lobbies Government Select Committee on pre-packs

The British Printing Industries Federation (BPIF) has submitted written evidence on the impact of pre-pack company administrations to the Business and Enterprise Select Committee’s enquiry into the Insolvency Service.

The BPIF’s evidence explains how overcapacity in print has led to industry consolidation taking place over many years, with the purchase and sale of companies – often through pre-pack deals – now commonplace and usually occurring where companies have become distressed as they fail to keep pace with competition.    

While accepting that small businesses trade on their reputation – meaning that a quick administration is essential to preserve contracts and jobs – the BPIF points out that pre-packs allow businesses to write off debts owed to creditors through the arrangements, with the new owners sometimes the same as the old ones. It also says that there have been cases where insolvency practitioners have helped sell a business back to its original owners free of debt, without considering marketing the business, or where they have proactively targeted failing businesses to offer the owners an easy way out of debt.

Given their experiences to date, many BPIF members are skeptical about the effectiveness of the new code of ethics on company wind-ups (SIP 16), which calls for disclosures on topics such as valuations when reporting to creditors after the sale of a company has been completed. Although there is a disciplinary element to the new code, which would mean IPs could find themselves open to disciplinary action from their governing body if they could not explain a deviation from the rules, .the BPIF argues that the impact of this should be carefully monitored, with consideration being given to the introduction of statutory measures if it is found wanting.

The BPIF reminds the Committee that not all pre-packs necessarily involve malpractice. Some involve a new management team coming in, with fresh capital and a clear plan of action for the business geared to turning it around. It accepts that even where the existing management team buy the business, it may be that they have been trading responsibly previously but have been hit by loss of contracts, bad debts etc and forced to close. However it argues that pre-packs still inevitably result in other companies being faced with a competitor who has acquired a clear trading advantage over them, especially if they themselves are heavily laden with debt.

The BPIF recommends four actions to the Committee:

(i) Government should evaluate the adverse consequences of the current enterprise legislation that are now impacting on our industry through pre-packs.

(ii)The effectiveness of SIP 16 should be carefully monitored, with consideration given to the introduction of statutory measures if it is found wanting.

(iii) Government should support initiatives to establish a confidential list of companies interested in purchasing others, providing scope for other purchasers to have the opportunity to bid and denying IPs the ability to argue that no-one else was interested in buying.

(iv) Suppliers should be encouraged to refuse credit facilities to pre-packs until the new owners have at least demonstrated some willingness to pay off past debts. Normally this would involve continuing to supply but insisting on payment up front, although in some cases suppliers should consider not supplying at all.

BPIF corporate affairs director Andrew Brown said: ’In an overcapacity industry such as print, pre-packs can often be the only way that an unprofitable business can be sold intact. With fellow printers hungry for new contracts and customers jumpy at the prospect of loss of supply (especially in sectors with short publication deadlines), the interests of employees, shareholders and customers alike may be best served by keeping the sale under wraps until the deal is concluded. However this is little comfort to other firms faced with a competitor who now has a clear trading advantage over them.

‘The Government’s philosophy is to encourage new business start-ups and of course the Enterprise Act 2002 makes it much easier for businesses to get started, and for those involved in failed ventures to start again. Although Government is unlikely to wish to reverse these provisions, they need to be aware of, and should seeking address, the adverse consequences of the current legislation that are now impacting on industries such as print. We have put forward suggestions for actions they can take to help mitigate the worst effects of pre-packs and we hope the Select Committee will support these.’

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