It has been predicted that pre-pack administrations will mount up this year, as consumers continue to avoid spending on the high street.
The controversial pre-pack administration method has been used by numerous retail businesses since the credit crunch hit in 2008, including Officers Club, Homeform and more recently Jane Norman.
There were a total of 769 pre-packs in 2010, and as the next quarterly rent day at the end of September looms it is predicted that several more could be badly affected.
Designed to keep jobs and brand value in tact, while allowing the business operations to be relatively unaffected, the pre-pack administration has inspired much criticism. Finance experts have claimed that it is susceptible to abuse. Some companies continue to use trade creditors services while beginning the pre-pack, progressing to buy back its own assets while ditching its debts, leaving creditors out in the cold.
Speaking to the Financial Times, Clive Black, analyst at Shore Capital said, “If consumer activity remains where it is at the moment, then I think we can expect the outlook for the retail sector to be particularly challenging.”
“A pre-pack is often the least worst option”, he added.
Frances Coulson, president of R3 commented, “Whatever the law is, people who are determined to abuse the system will do so”.
Click here for our previous story on the Government's proposed pre-pack administration reforms.
