There was an interesting report in today’s FT on the case of Ve Interactive, a UK company once allegedly worth more than $1 billion (at least they had several hundred employees) which went into administration after making heavy losses. It is alleged that CEO and founder David Brown mismanaged the company and he has subsequently be made bankrupt.
The business was taken over by a consortium of investors (including Douglas Borrowman and Mark Pearson) some of whom became directors before it went into administration. It was subsequently sold quickly to those directors via a pre-pack (for £2 million).
But the administration (by Smith & Williamson) has been challenged in court and they have been removed by the court. Mr Brown and two former members of the consortium mounted the challenge based on the claim that the administrators were “completely blind” to the conflict of interest in selling the business to the directors. They also claim the sales process was mishandled and bidders only had one day to make an offer. They say there was no chance of a meaningful bid being made because of insufficient information being provided to potential buyers. Ve Interactive is now trading as “VE” and is owned by Ve Global UK Ltd.
At least that’s the gist of the story so far as one can understand such complex events.
In essence this is a typical example of a pre-pack administration which I have commented on many times in the past. A business is sold in extreme haste, often to related parties as in this case. The process happens so quickly that there is no chance of adequate marketing of the business to get a fair price. The administrators can ignore anyone but their chosen buyer and deter them by restricting information and giving them little time to raise finance or adequately consider the matter.
In summary, pre-packs are ethically dubious, legally corrupt and should be outlawed as soon as possible. As I said only recently in an article about events at Carillion: “Regrettably in the UK, insolvency law seems to have been devised mainly in the interests of insolvency practitioners and bankers. It is time for a complete reform of the law and practices in this area.”
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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