It's a fine line to cross between the effusive outpourings of the public relations industry and the real story – and it sometimes takes a while to negotiate that crucial line.
Back in August last year, it was announced, through the aforesaid auspices of the PR world, that the Birmingham-based Gatecrasher nightclub business had undergone a pre-pack administration after being unable to pay its debts.
The debts admitted to publicly were substantial, with £3 million owed to Barclays Bank and £500,000 to the taxman.
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The Broad Street venue was one of four 海角视频 Gatecrasher nightclubs which had entered into the pre-pack process, an increasingly common insolvency tactic whereby the business and assets of the old company are sold to current or former directors, who then form a new Phoenix from the Ashes operation.
Under a pre-pack arrangement, the directors in situ simply purchase what assets are left from the wreckage, and continue operating with the same contracts and clients. Simple, eh?
In the case of Gatecrasher, group supremo Simon Raine forecast – through his PR advisers, naturally – a bright future for the business, as you might expect.
“The transfer of the business to the new company, along with extensive corporate restructuring and refunding of the business, has enabled Gatecrasher to progress on a secure financial footing.”
In a further rousing statement of intent, Mr Raine added: “From Gatecrasher’s point of view there is no problem with Broad Street.
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“Our venue is packed every night. But to succeed you need to keep evolving, keep investing and keep developing. It is important to keep at the forefront of music and fashion trends.
“We invest heavily in the biggest name DJs and the most cutting edge production value. We fly in the most globally renowned DJs who sell out events the world over. If clubs don’t develop and invest, clubbers will stop going, simple as that.”
Six months down the line from the Gatecrasher pre-pack administration, this is not a story of ‘music and fashion trends’, ‘globally renowned DJs’, ‘cutting-edge production values’ or any other happy-clappy PR-speak.
It’s a story of 230 creditors, from suppliers and councils through to individuals such as DJs who are owed over £2 million by Mr Raine’s group, and won’t get a penny back.
A progress report by administrators Duff and Phelps reveals that 233 creditors have lost out to the tune of £2,081,840. Gatecrasher may have been returned to a ‘secure financial footing’ – we await its progress with interest – but that can’t be said for all those people and firms owed more than £2 million. A victims support group set up on Facebook has already attracted more than 70 contributors.
The Gatecrasher crash and its messy aftermath may resonate with victims of the pre-pack administration of Yardley-based Europackaging in September 2009.
Amother PR-generated story revealed that nearly 200 jobs had been saved at the packaging firm after former owners the Majid family acquired the company, three years after they had sold it to a private equity firm. In yet another example of florid PR guff masquerading as hard-nosed business intent, Europackaging director Paul Windle said: “Our philosophy of excellent customer service, leading edge innovation and a competitive supply proposition will be the cornerstone of our strategy in the coming months.” Quite.
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It didn’t take very long for the real story to trickle out. The pre-pack administration had left a debt of £76 million, including a string of small businesses owed thousands. A total of £5 million was owed to unsecured trade creditors, and £71 million to banks.
The little guys could look forward to only a ‘small dividend,’ according to administrators KPMG.
None of this should really be too surprising to all the accountants, the insolvency specialists, cynical journalists, and first and foremost, the directors who resort to pre-packs to keep businesses going.
No-one is suggesting that Mr Raine in the case of Gatecrasher or the Majid family in the case of Europackaging have done anything other than use a legitimate, if highly controversial, accountancy tactic to keep the show on the road.
But it is worthwhile studying the words of Cobra beer king Lord Bilimoria, whose Indian drinks business underwent a pre-pack in May 2009 owing creditors more than £70 million.
Nearly a year after such a chastening experience, the Cobra king admitted: “Pre-packs have a bad reputation and that is quite understandable. People will deliberately go through the procedure and wipe out their shareholders and creditors.
“What a pre-pack is meant for is why we had to use it – as a last resort. The only other option at that stage was to lose everything.”
History tells us that, all too often, it’s the little guy who loses out when the big firms go under. Just think of the fallout from the collapse of MG Rover, and the workers’ Trust Fund that became a High Court game of ping-pong between bankers HBOS and the former Phoenix directors.
It’s hard to escape the conclusion that pre-pack administrations are, far too often, a cynical ploy enabling unscrupulous bosses to dodge their obligations and walk away from mountains of debt, while the little people are simply left out in the cold counting their losses.