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Enterprise Act is failing staff and suppliers alike
Events over the past two weeks have exposed the pressing need for reform of the UK's system of company administrations.
The failure of Goodman Baylis and the pre-pack of DSR are two damning indictments of the 2002 Enterprise Act, but for different reasons.
I have railed against pre-packs on this page before and many of you have got in touch to argue that pre-packs often save jobs, a key consideration of the administrator following the reforms that led to the Enterprise Act.
While I accept this as a short-term benefit of pre-packs, the act has done little to secure jobs for the long term.
It is a sad fact that administration in the print industry today either means an, often cynical, pre-pack or closure. Companies simply do not have the resources to restructure and, with administration being such a dirty word, clients flock from the business meaning a closure is all but inevitable.
Manufacturer Nipson last week put its French business into administration (see page 6 of this week's PrintWeek magazine). It now has an initial period of six months to restructure under creditor protection. Certainly some jobs will be lost over those six months but the jobs that remain will be secured for the long term and creditors stand a far higher chance of being paid.
Were we to have provisions for company restructuring in place, any potential buyer would have been able to acquire the assets of the two companies with the time and resources to repay the creditors and secure the futures of the staff. The failure of Goodman Baylis stems in part from the supplier revolt following its acquisition. While I understand their position, the law must provide enough protection for suppliers so they do not need to resort to vigilante boycotting.
The Enterprise Act also made it easier for business owners to shelve debts through a pre-pack as we saw at DSR leaving suppliers to pay for the failures of the incumbent management team.
In addition, the Act was designed to protect staff. Yet, while administration means a hastily signed pre-pack with clients jumping ship at every opportunity, it is hard to see how the interests of the employees are truly represented.
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Comments
Mike Dolan - 07 November 2008
Your observations are apposite. As the former director of a company that was reluctantly obliged to appoint Administrators and regrettably let down a good many suppliers because the scope of existing legislation is so limited, I recognise only too well the need for a change in the law to provide something closer to the US Chapter 11 system, as David Cameron advocated \(Print Week, July 17, 2008) when he said: "[Liquidation] isn't good for the companies, many of which are actually fundamentally sound. This isn't good for the banks, which lend these companies money. And it's not good for employees – who face being laid off". He could have added it's "no good for unsecured creditors either".
Chapter 11 enables a company's management [existent or newly drafted in], acting under the supervision of the Court, to declare a debt moratorium and continue trading for a specified period of time if a realistic survival and/or refinancing plan can be formulated. That axiomatically means paying some or all of the debts due to unsecured creditors, unlike in a UK Administration.
One of many problems with the existing UK system is that in the absence of a moratorium; which in the case of MPI I sought and failed to negotiate with a small number of minor hold out suppliers, the directors of a company have no option but to appoint Administrators and thereby destroy any viable prospect of unsecured creditors receiving anything. If MPI had been able to achieve a Chapter 11 style moratorium, I do believe a completely different outcome would have ensued for the benefit of the unsecured creditors and staff. As you rightly say, vigilante boycotting is certainly not the answer as demonstrated by the unfortunate demise of Goodman Baylis and further damage being wreaked upon Borcombe after the collapse of HS Printers.
Clive Keeble - 08 November 2008
Surely the failure of HS Printers is in the main because they were under-capitalised for the committments which they took on when buying the core businesses of MPI out of administration - albeit via a hasty pre-pack.
To speak of "vigilante boycotting" by suppliers is in my opinion inflammatory and begs the question of just how much groundwork the directors of HS Printers had done before entering into the subsequent September 2008 pre-pack.
As a businessman, if I was involved with the purchase of a company out of administration - via a pre-pack or other vehicle - then I most certainly would have contacted suppliers before signing the final agreement with the insolvency practitioners.
In my opinion, considering the recent trading history of Goodman Baylis by late August 2008, any new owners should have expected to be required to pay for *all* supplies in advance by credit transfer and to show the trade that as new owners they had absolutely no connection with any previous owners.
Would anybody "takeover" a chain of fried fish shops unless they had an assurance that they would be able to source the fish to fry ???
Taking into account that the directors of HS Printers apparently had no meaningful current experience in the print industry one would have expected the insolvency practitioners to have looked very closely at their business plan and assurance of long-term liquid funds to meet all forseeable eventualities.
Now, approx 120 mostly highly skilled print workers at Goodman Baylis are on the dole : the price which these workers have had to pay because their workplace has been treated as no more than casino chip in the roulette wheel of commerce.
Ann O'Dyne - 08 November 2008
Chris, if you consider the paid up share capital of a private company to be the extent of its capitalisation you are very wide of the mark. Most private UK operating companies are effectively capitalised by a combination of paid up share capital and loans introduced as and when needed by the shareholders. Our tax system makes that the most efficient method. I analysed the HS Companies forecasts for a supplier client and found them to be consistent with many comparable companies. The shareholders made loan funds available and presumably would have continued to do so if they had continued in business. Their problem appears to have been that despite their willingness to pay up front for supplies, the appropriately termed vigilantes refused to supply them. We could not find any connection between HS and the previous owners but clearly that did not stop the vigilante boycotters from chasing imaginary shadows. Don't blame the much needed entrepreneurs such as Searle & Hardy who are willing to come into the print industry for the failure of Goodman Baylis, blame the vigilantes for their futile boycott that has ruined the employment prospects of 100+ works.
Brian Kemp - 08 November 2008
Nobody seems to consider the customer in this type of debate. We now place work with a panel of printers because in the past when we had exclusive arrangements we were frequently let down by printers going into Administration and our jobs were ransomed back to us by Administrators or new owners. The present Administration laws are definitely inadequate and something along the lines of a US Chapter 11 approach would be helpful to customers, suppliers, staff and lenders. It's an idea whose time has come.
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