administration cases than in administration business sales without prepacks, but that average returns to secured creditors are considerably higher in administration pre-packs than in administration business sales (59.1 per cent to 27.5 per cent) and that unsecured creditors do twice as badly in administration pre-packs as in administration business sales (2 per cent to 4 per cent).50 In post-Enterprise Act administration pre-packs the average return for unsecured creditors was only an eleventh of the return from post-Enterprise Act administration business sales.51 Such results, it seems, support the contention that administration pre-packs favour secured creditors at the expense of unsecured creditors.52

Accountability and transparency

On the transparency of pre-packs, Frisby’s 2007 study considered whether practitioners’ reports on pre-packs disclosed sufficient information to creditors to allow them to determine whether their interests had been adequately protected.53 The quality of such reports varied greatly but their most common omission was the identity of the purchaser. Most gave details of the consideration but the overall informative value was rated, disturbingly, as ‘haphazard’, with significant gaps in a number of cases such as ‘to provoke suspicion and mistrust among creditors and unsecured creditors in particular’.54 That said, Frisby found that disclosures in non-pre-pack business sales were no better and concluded that disclosure deficiencies were not an exclusively pre-pack problem.55

Statutory insolvency procedures offer a number of procedural and substantive protections for the creditors in a troubled company.56 Focusing on the post-Enterprise Act 2002 administration procedure, it was seen in chapter 9 that administrators must perform their functions in the interests of the company’s creditors as a whole and as quickly and efficiently as is reasonably practical. Administrators are officers of the court, they must act as agents of the company, and they have to operate within a framework of detailed rules on such matters as appointments,

50 Ibid., pp. 53–64. 51 Ibid., p. 66.

52The conclusion drawn by Sandra Frisby, ibid., p. 65.

53Ibid. 54 Ibid., p. 31. 55 Ibid., p. 32.

56See A. Lockerbie and P. Godfrey, ‘Pre-packaged Administration – The Legal Framework’ (2006) Recovery (Summer) 21.

statements of purposes and proposals, notifications and notices, moratoria, creditors’ meetings, and reports to the court and to creditors.

The use of pre-packs does not do away with the need for such statutory procedures. The pre-pack does, however, create at least the risk that the administration procedure will be reduced to a formal or presentational process rather than one offering real protections. This, the critics of prepacks would argue, is liable to happen, first, when the pre-pack closes the effective options for the company and establishes a single way forward without reference to the full array of creditors. Second, it may happen when the administrator fails to act in a manner that is consistent with his obligations to act in the interests of the company’s creditors as a whole. This failure, it may be contended, is liable to occur when administrators are excessively inclined to treat the pre-pack deal as a fait accompli or are too heavily influenced by the banks.57 Walton argues, for example, that if a deal to sell a company’s business has been made in a pre-pack without leave of the court, and prior to a creditors’ meeting, it is difficult to see how the administrator who proceeds with their mind very much on the sale can be said to be complying with the statutory duty to consider rescue.58

Given that pre-packs are not prohibited by law59 it is clear that the prepack raises new questions about the role of the administrator and the place of regulatory or other controls in ensuring that there is accountability within procedures based on pre-packaging arrangements. A key focus for attention here is whether such changes demand a corresponding movement away from legal control and towards more managerial or professional approaches. How such control systems might govern prepacks so as to increase efficiency, accountability, fairness and expertise is accordingly a matter for our consideration, and managerial and professional ethics and regulatory strategies will be looked at.60

57See Moulton, ‘Uncomfortable Edge of Propriety’. On challenging administrators’ conduct see IA 1986 Sch. B1, paras. 74 and 75 and ch. 9 above. On administrators’ duties (under the old regime) see Re Charnley Davies Ltd [1990] BCC 605.

58See Walton, ‘Trick or Treat?’, p. 116: ‘ironically, in this type of administration, the secured creditor may control the whole process … more than in the old-style administrative receivership’.

59See Re T&D Industries plc [2000] 1 WLR 646, [2000] BCC 956; Lockerbie and Godfrey, ‘Pre-packaged Administration’.

60On the division of control strategies into state, quasi-regulatory and corporate/managerial types see N. Gunningham and P. Grabosky, Smart Regulation (Oxford University Press, Oxford, 1998).