In the same week iconic British retailer Aquascutum entered administration, the British Property Federation has highlighted the growing underhand practice, mainly in relation to pre-pack administrations, where the terms of the sale are kept deliberately vague, and at the same time landlords are pressurised by an agent of the buyer of the company, with or without the knowledge of the insolvency practitioner, to extract concessions on existing leases of profitable stores. This is often under threat that if concessions are not given then that landlord’s property will not feature in the sale.
The result on profitable stores is simply to transfer profits from pensioners’ savings in property to the new buyers of the business, often private investors. Another consequence is that it puts rival successful retailers at a disadvantage. This reinforces failure, rather than promoting more successful retailers.
Landlords are supportive of a rescue culture and over the course of the recession have been at the forefront of the most high profile retail rescues. However, the BPF is calling on the Government to:
•Amend the Insolvency Practitioners’ guidance notes, so called SIP16, so that an IP must be clear which assets are part of the sale, on which it is seeking to negotiate, and which it does not want;
•Also to amend SIP16 so that it frowns on any collusion between the insolvency practitioner and buyer or his agent to extract concessions on leases that are part of the sale;
•Speed up the process of achieving better regulation of the insolvency sector, including a single contact point for making complaints and one that does not involve having to go to court. It is now nearly two years since the OFT called for such measures;
•Tighten up the rules on advertising by Insolvency Practitioners.
Commenting on the Federation’s campaign, Liz Peace, Chief Executive of the British Property Federation, said: “In some of the most high profile retail insolvencies tens of millions of pounds are lost in pensioners’ savings as concessions are extracted from landlords of profitable stores by the new buyers of the insolvent company. The prime role of the Insolvency Practitioner in any rescue is to secure the best result for creditors, not to maximise the profits of the new company and we are becoming increasingly concerned that Insolvency Practitioners are acting more in the interests of the buyers than creditors.
“On both the flaws in pre-packs and better regulation of the insolvency sector, the Government has frankly analysed the problems to death, and it now needs to act if it is to maintain unsecured creditors’ trust in the insolvency system.
“An enterprise economy works first and foremost on trust and written contracts. If both become worthless that has serious implications for enterprise and economic efficiency.”
Nick Starling, Director of General Insurance at the Association of British Insurers, said: “The pre pack process whereby a failing company is bought out and quickly resumes trading must be made more transparent, with better disclosure and accountability. The current system does not adequately protect the interests of unsecured creditors, many of whom will be SMEs, who rightly feel that their interests are not fully taken into account.
“Despite the professional and legal rules designed to prevent abuse, it is inevitable that a large proportion of pre-pack transactions will be structured to favour the owners of the business and their secured finance providers, who initially engage the insolvency practitioner and are privy to the design of the scheme, at the expense of unsecured creditors.”
In support of its ‘Taking the Profit’ campaign the British Property Federation is calling on unsecured creditors to share their stories of dissatisfaction with the insolvency system, via its website.
It is also engaging in Parliamentary activity to highlight the impact and consequences on unsecured creditors.
Have your say on this story using the comment section below