Biased in favour of secured creditors or the only viable solution? Pitmans pensions and insolvency partner Denise Fawcett discusses the controversial use of pre-pack arrangements in the case of Bernard Matthews

This week it was revealed that the rescue package for Bernard Matthews has left unsecured creditors with only 1p in the pound. Some have accused the administration strategy of being tactically implemented to ensure maximum cash for the secured creditors and investors whilst the pension scheme, which has a £20m deficit, and other liabilities are left penniless.

However, Denise debates that pre-packs are a legitimate way of maximising returns to creditors and saving jobs: “This process is designed to provide for an orderly and fair distribution of the value of the business and its assets amongst creditors and preserve the business as a going concern.”

Whilst, unfortunately, investors have on occasion manipulated the process to cut costs and generate value for themselves, Denise argues that this is not the norm and that they are not some “underhand or mysterious arrangement designed to prefer these parties.”

However, it is not to say that the system is not open to abuse and if that is the case, it is for the Pensions Regulator to consider using its ‘moral hazard’ powers. As the members have the benefit of the Pension Protection Fund guarantee, whilst some members will be worse off, the PPF is the ultimate victim of any cynical attempt to shed the pension scheme debt and it is the job of the Pensions Regulator to protect the PPF as well as the members.