Is there a silver lining to the low value of Sterling that has hit the headlines in recent days? According to experts – our exports will be cheaper and so boost manufacturing, companies with foreign earnings will be quids in, and we will see more of our friends from over the pond spending money in our shops. At the Business Sale Report we think there might be another reason the cheap pound could benefit UK plc. Businesses owners who are thinking of selling would do well to investigate the possibility of marketing the business abroad. Overseas investors can buy larger businesses in the UK than they would have been able to do in the past. Of course, revenue would still be in Sterling but if, after holding the company for a while, the currency appreciated then the investor would make a profit on the sale. Inward investment is bound to help UK plc.

In our view, Sterling is undervalued for a number of reasons. In the first instance, the media have gone into overdrive about the state of the economy partly because they love bashing the Labour Government. In addition, there is a perception that we have a poor manufacturing and export base, so increased competitiveness in exported goods is not going to benefit us. This is not really true. The UK is among the leading exporters of manufactured goods in the world. Germany and China, of course, are way out in front. Then comes the USA, followed by Japan. But in fifth, sixth and seventh places, in a tight group, are the UK, France and Italy. What is more some of our manufactured goods like defence, where we are a global leader, are seen as having better than average growth prospects. After all, the world doesn’t seem to be getting any more peaceful.

Also it is quite clear that the Bank of England’s remit is to target inflation and economic stability, not exchange rates. Whereas many countries have made it clear that they are very keen to keep a high value currency, no matter what. This of course is bound to attract capital inflows and speculators at the expense of the pound.

Other commentators have argued that the pound’s fall is partly related to the curtailment of international banking flows into the City. Therefore it becomes an indicator of the perceptions of global financial risk. When risk aversion rises Stirling gets hammered. Things change – after the 1976 IMF crisis the pound rose from $1.65 to $2.40.

The currency issues aside, UK plc is still a very good place to do business especially when compared to other countries. Perhaps the most obvious advantage that the UK has over other European countries is its flexible labour laws, which translate into lower hiring costs, uncomplicated takeover rules, and a generally non-protectionist government that welcomes foreign ownership of UK companies.

In addition, the likelihood of a high number of distressed companies for sale in the UK has attracted the interest of Vulture funds. A recent poll of a 100 funds by Debtwire, the news service owned by the Financial Times, found that they ranked the UK ahead of Germany, France and Russia as places to invest. Another reason for the funds’ interest is the relative friendly bankruptcy regime in the UK which is seen as more favourable to creditors compared to other European countries

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Following vocal complaints by groups of aggrieved creditors, any future pre-pack administrations will be closely scrutinised by the UK Insolvency Service.

Pre-pack administrations have proved to be a fairly rapid way for companies in severe financial difficulties to shake off debts and burdensome assets and continue trading.

But several high-profile pre-pack business administrations, including Whittards of Chelsea and Tom Hunter’s USC have highlighted the simple fact that company creditors are simply shrugged off and left in the dark about what is going on.

This month a new code of practice was launched by the government with the intention of making the whole process more transparent, especially to creditors. If insolvency practitioners are putting a pre-pack deal together for businesses in administration, then creditors must be kept informed both before and after the process as to who is is dealing with the administrator, what the terms of the deal are and what was involved in selecting the individual(s) or organisation taking over the running of the business.

Yesterday’s statement to parliament by the deputy head of the UK Insolvency Service, Graham Horne, was the first clear indication that the service was going to be serious in the way they policed the code. He said, “We are going to get every statement into our office and see the administrator has followed the spirit”, adding that they would prioritize the policing of pre-packs.

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Pre-pack insolvency practice has had much bad press of late. Tenon Recovery has come out fighting and said that it can help to avoid the “domino effect” of suppliers to the business going bust. Critics have argued it has allowed owners of businesses to buy back their companies with most of the liabilities released, so leaving creditors out of pocket.

Tenon has identified six major benefits to the pre-pack insolvency route that must be considered.

So there we have it, a pre-pack is the best way forward. Or is it?

The problem is that with a pre-pack it can be difficult to argue there would have been a better outcome if the business was put up for sale to invite best offers. It can be argued that once the business had gone into administration all goodwill would have been lost, suppliers would have pulled the plug, and the value of the business and hence the chance of the creditors being paid off would have been reduced. But hey we have no way of knowing… Of course, the other problem with delaying any resolution is if the previous owner/manager tabled an offer for the business that was rejected and then the business completely failed then the knives would be out for the administrators and the lawyers would be sharpening their pencils.

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