Vince Cable launches 'pre-pack' review

Vince Cable launched a review of controversial "pre-pack" administrations, days after the latest rescue of a collapsed high street chain brought the process into focus

Vince Cable
Vince Cable

Vince Cable launched a review of controversial "pre-pack" administrations, days after the latest rescue of a collapsed high street chain brought the process into focus.

Teresa Graham, a leading accountant, will carry out the review following criticism that the process can leave creditors owed money in the dark.

It comes after womenswear retailer Internacionale entered into a pre-pack arrangement in which it was bought by a new company backed by existing shareholders.

Administrators at Ernst & Young said the business had been sold as a going concern immediately following their appointment.

The move last week saw 1,550 jobs saved at 114 stores across England and Wales. However, three days earlier, 18 outlets had been shut and it was not clear whether any of these jobs have been transferred to the new business.

The directors of the company were expected to resume their previous roles. Most recent accounts filed at Companies House showed the business had £19m of debts, including a £9.4m loan from its biggest investor.

A statutory letter is being sent out to creditors to explain the reasons behind the administration. It was unclear how much they stood to lose.

Administrators said the new owner would honour customer gift vouchers, orders where part-payment deposits had been made, and valid returns.

Tom Jack, joint administrator, said high street retailers had faced unprecedented conditions over recent years, with the market for fashion retailing becoming increasingly competitive.

He said: “The business has been significantly loss-making over recent years and although the directors have sought to restructure and reposition Internacionale, with significant cash investment from shareholders, it has not proved possible largely because of high fixed costs for the business.

“This has resulted in the retailer being unable to continue to operate outside of administration.”

However, the sale of the stores as well as the head office and finance operation would see trading continue without interruption.

A long-expected review of pre-packs was launched by Mr Cable as he published a discussion paper on company transparency.

The review will look at whether they encourage growth and employment and provide value for creditors. It is due to report back next year.

There were 728 pre-packs during 2012, representing 29% of all administrations.

Businesses such as beds retailer Dreams and lingerie chain La Senza are among those to have gone through the process that allows the assets of companies to be snapped up while its debts are written off.

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