Time to re-visit pre-pack administrations?

LONDON – Taking a conscious decision to leave suppliers unpaid is a form of ‘financial Darwinism’ claims a leading UK insolvency and restructuring partner. Vernon Dennis, of law firm Howard Kennedy, claims brands and retailers leaving their suppliers in the lurch is both short sighted and potentially ruinous to the economy as a whole. “It is short sighted in that the destruction of supply chains will leave rescued retailers with far fewer options when ‘normal’ trading resumes,” he told Apparel Insider, “and ruinous in that the bad debt has an equivalent impact on the supplier’s business and may imperil its survival.”

The comments come in the wake of numerous stories of suppliers which have been left with huge unpaid invoices from the likes of Debenhams, Peacocks and Arcadia, as well as US business such as JCPenney and Sears Holdings. Many suppliers have already been stung by restructuring and administrations at the likes of Debenhams and Sears in the past.

In the UK, the fact that Peacocks and Debenhams are once again in administration with no way of paying their debts to suppliers raises further questions over the nature of pre-pack administrations and who they actually benefit. It also begs the question of why retailers are being allowed to limp on from one administration to another, leaving trails of unpaid creditors in their wake.