Re Kayley Vending Ltd [2009] EWHC 904 (Ch) is a UK insolvency law case concerning the pre-packaged administration procedure when a company is unable to repay its debts.

6 I propose to examine briefly the nature of the concerns that have been expressed about pre-packs, and then the way in which the provisions of the 1986 Act as now in force, and the case law to date, have operated to give rise to them.

7 The Association of Business Recovery Professionals publishes some helpful material on its website ( http://www.r3.org.uk/publications ), including a paper by Dr Sandra Frisby entitled “A Preliminary Analysis of Pre-packaged Administrations”.

Among a number of provisional conclusions, she noted that pre-packs from administration tended disproportionately to involve a sale to connected parties and particularly directors, that they seemed on average to produce a better out-turn in terms of employment preserved and returns to secured creditors, but a worse one in terms of return to unsecured creditors, in each case by comparison with sales negotiated after appointment by the administrators.

Its directors and shareholders are introduced to an appealing fellow who drives a very nice BMW who explains that if they work with him they will get rid of most of their creditors and buy back the business pretty well immediately at a very modest cost.

The organising administrator has a clear conflict of interest as typically he wants to get the appointment and the management can influence that … It may suit a bank as it can allow it to participate in the equity going forward in a controlled way or to provide it with an assured return potentially at the expense of other creditors.

There is an infrequent need for pre-packs BUT only rarely is there a compelling case for not trying hard to follow the law by seeking to maximise realisations for creditors …

This whole area of pre-packs needs regulation … Perhaps a judge should bless prepacks before they are implemented.”11 A general summary of these concerns would be that the speed and secrecy which give rise to the advantages claim for pre-packs may too easily lead the directors and the insolvency practitioner to arrive at a solution which is convenient for both of them and their interests (perhaps also satisfying a secured creditor who might be in a position to appoint his own receiver or administrator), but which harms the interests of the general creditors because:

Any creditor who is dissatisfied with a pre-pack sale is of course still subject to the lack of economic incentive that Mr Moulton referred to: he may in practice have to fund the whole cost of investigating his concerns and any resulting litigation, at the end of which even if successful recoveries are uncertain and in any event go in to the general pool of assets from which, at best, he is only likely to receive an enhanced dividend.