Desnos raises concerns over “phoenix administrations”

Euler Hermes chief executive Fabrice Desnos has hit out at directors exploiting “pre-package” administrations.

“Pre-packs” allow directors to place a company in administration and then sell it on.

He is particularly concerned about “phoenix administrations”, where directors eventually end up buying back the business.

The practice threatens to rack up claims for Euler Hermes because it insures suppliers to companies that could be placed in pre-pack administration.

Desnos, who heads the UK’s largest trade credit insurer, would not mention specific companies as he said he was bound by confidentiality agreements.

“Directors will place a company into administration at 12 and at 12.15 will buy it back from insolvency practitioner, having ditched all the unsecured suppliers in the process.

“The increasing frequency of this happening is very concerning. It makes risk decisions more difficult because it begs questions as to how much support you can expect from shareholders or a group of companies.”

The economic downturn meant there was little stigma attached to insolvency, he said.

“You can see a trend of solvent and cash-rich shareholders letting poor subsidiaries go and therefore exposing the unsecured suppliers.”

Earlier this month a report from the Parlimentary Business and Enterprise Committee said “pre-packs” were damaging confidence in Britain’s insolvency regime.

A more transparent reporting system, designed to keep creditors better informed, was introduced in January. Supporters argue the speed offered by pre-packs is vital for people-driven businesses, otherwise staff walk away during a longer administration process and all value is lost.

An Insolvency Service spokesman admitted there were “concerns” about pre-packs. The service would report back later this summer on how the new system was working.

Meanwhile, Desnos said Euler Hermes continued to hold broker clinics every three to four weeks. They involved discussions about clients and the government’s top-up credit scheme.