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UK paper merchants have joined a growing number of companies speaking out against pre-pack deals and customer insolvencies.

At the National Association of Paper Merchants’ group policy meeting last week, director Tim Bowler said merchants were becoming “fed up” with pre-pack deals. He also warned they were occurring far too often.

Giles Harrison, Antalis’ regional finance director, said: “So-called phoenix companies, where the same directors funded by the same shareholder continue, debt-free, as if nothing had happened, are clearly wrong.

“They are abhorred by the merchants who each have their own strong policy.”

Harrison said that the situation with pre-packs, where a new shareholder comes in, was much less cut and dry.

“In such a situation, time is of the essence so deals are generally done quickly. This naturally leads to a suspicion that the whole thing was pre-planned weeks in advance.”

Harrison said it is up to each supplier to decide on a case-by-case basis whether it continues to supply.

John Grogan, managing director at Leeds-based large-format printer grgprint.com, said he has attempted to persuade other printers to be more proactive with their suppliers and push them to stop dealing with phoenix firms.

He said: “I believe we have a role to play in policing our own patch, and working with suppliers to make them aware of views. Suppliers are tightening up and it is improving. Often they will not supply phoenix firms.”

Since the passing of the Enterprise Act of 2002 inten-ded to “streamline the procedure of administration”, there has been a significant rise in the number of pre-pack deals.

A study by R3, the Association of Business Recovery Professionals, found that pre-pack sales doubled to 66% of all of sales out of administration following the introduction of the act.

As part of the act, administrators have a duty of care to all parties involved in pre-packs, and have to secure the best deal for all creditors.

However, often the pressures of finding a buyer without running the business into the ground lead to a quick-fire sale and accusations the administrator has not tested the market sufficiently.

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INSOLVENCY LAW
• Administrator’s goal is to rescue a firm as a going concern
• Assets are sold piecemeal, or the whole business as a going concern
• A company in liquidation is unable to pay off debts
l• May be voluntary or com-pulsory under court orderAssets are sold piecemeal, or the whole business as a going concern
• A company in liquidation is unable to pay off debts
• May be voluntary or com-pulsory under court ordersufficiently