Pre-pack administration- why is this method criticized?
Liquidation of businesses through pre-pack administration has continued to gain popularity over the last few years. This has been a direct cause of financial crisis faced by many companies. The popularity of this method has been met with equal criticism because it can leave unsecured debtors with no return. The main reason why this method receives so much criticism is because it allows the creation of a new company by the same directors of the old company without settling all their debts. Another cause for the uproar is the process of disposing of assets through the pre-pack administration. Many people feel that there is less transparency in the process as it does not allow unsecured creditors to intervene. In essence, the critics feel that liquidating a business through pre-pack administration is a ploy to avoid paying unsecured creditors. Despite this criticism, this method remains one of the best ways to deal with business bankruptcy. What the critics fail to realize is that it is not the pre-pack arrangement that reduces the money available for the creditors.