Prem Sikka is an idiot, isn’t he?

For instance, recently the assets of food company Bernard Matthews were sold in a pre-pack insolvency arrangement. This enabled banks, shareholders and directors to recover their monies but left the pension scheme with a deficit of over £20m, now standing at about £75m. This has not been followed by an inquiry from the Commons work and pensions committee. At the very least, it needs to explain why the dumping of pension scheme liabilities by other insolvencies is not investigated.

The sharehgolders, as shareholders, lost everything of course. The clue is in the word “insolvency”.

Prem Sikka is an accounting professor.

43 comments on “Prem Sikka is an idiot, isn’t he?

  1. Flatcap army

    Trade creditors took a loss, not the banks.

    https://www.parliament.uk/business/committees/committees-a-z/commons-select/work-and-pensions-committee/news-parliament-2015/pre-pack-bernard-matthews-briefing-16-17/

    Prem thinks they took a loss of 99%, but that the secured creditors including the banks and the private equity investor got their money out.

    The big problem I have with Prem’s analysis is that it is so thin. No attempt to quantify the money in and out from the PE firm. He bleats about the quality of the accounts, but it should be possible to do a bit better than the one year of accounts that he appears to be looking at.

    Note that the PE firm got its secured lending back out, but may have lost its equity investment. We don’t know if they took money out between the acquisition in 2013 and the pre-pack. It’s sad that the select committee appear to be taking evidence from a not very good analyst.

  2. Pre-packs are a con, not in terms of shareholders, but to get money to bankers with secured debts in preference to unsecured trade creditors.

  3. to get money to bankers with secured debts in preference to unsecured trade creditors.

    Isn’t that the whole purpose of the secured versus unsecured distinction for debt?

  4. Why are the shareholders not being chased for the pension deficit as per Mrs Green’s husband?

  5. Surely the whole point of secured creditors is that they get their money first? Or actually second as any debts to HMRC automatically get first call on the money

  6. Richard Gadsden: Pre-packs are a con, not in terms of shareholders, but to get money to bankers with secured debts in preference to unsecured trade creditors.

    I’d agree with SE on this one – there’s not much point in a hierarchy if the hierarchy isn’t going to b respected.

    Arguably, the ‘con element’ is where the previous owners pick up the assets on the cheap and start over with a clean(ish) slate.

  7. Murphy and Sikka are Tweedle-fucking-dum and Tweedle-fucking-dummer.

    Jury’s out on which one is which.

  8. “Flatcap Army

    Surely the whole point of secured creditors is that they get their money first? Or actually second as any debts to HMRC automatically get first call on the money”

    Had you been writing on 14th September 2003 I would have agreed with you but the day after that HMRC lost its preferential creditor status following the Enterprise Act 2002.

    There is currently some disquiet as to whether HMRC’s new ‘bank account raiding’ powers might be an attempt to re-gain some sort of preferential status by the back door but once a bankruptcy petition has been presented any attempt by HMRC to collect from a bank account should mean that the Insolvency Practitioner would be entitled to recover the money from HMRC.

  9. Ken>

    PrEye is just about the biggest hypocrite in the media, these days. Their inaccuracies are legion. The reality is that their fantasies about pre-pack shenanigans are delusions both of fact and of law: the things they claim are not happening, and if they were would be incredibly blatant criminal acts with an unmissable, unavoidable trail of evidence.

    The allegations aren’t just wrong, they’re ludicrous.

  10. @Dave – it was also the Eye that led the propagation of the ludicrous Vodafone tax bill – didn’t the bloke cheerfully admit to Tim at a function that he’d made the number up?

  11. Dave

    The In the city bit of Private Eye is full of idiocy. But some of their stuff on local councils appears to be about right.

  12. Usually its the cost of administration / insolvency etc as the highest tier charge. Then outstanding pay up to a limit and the banks floating charge.
    Then all other creditors – including HMRC for some taxes – lumped together.
    Then shareholders last – usually nothing for them if the higher tiers have had it all.

    Pre pack can be one of the better methods for creditors.
    There are worse options for creditors.

  13. If anyone is bored, they could go to the BBC HYS on John McDonnell’s suggestion that people earning £1m+ should publish their tax returns and vote up my post asking why the Murphatollah doesn’t publish his tax return…. (post 51)

  14. Do any of you publish their tax return. Timmy? You must be worth a bit. I doubt Murphster’s loaded. Doesn’t he live in Norfolk?

  15. meiac

    The difference is that the Murphster believes absolutely in transparency, and frequently demands that others reveal their affairs. He, however, refuses practice as he preaches, even though he might very well have some questions to answer. (Again, this would ordinarily be his business alone, but he has made himself a special case).

  16. McDonnell’s suggestion will die in a ditch- the Brits don’t like talking about money.

    McDonnell has confused the Corbynist echo chamber with reality (recurring theme alert). No one, outside the perpetual protesters will take the blindest.

  17. @meiac

    What Jack C said.

    The Murphatollah has made a career out of suggesting there are murky things going on everywhere that people are hiding and feels entitled to draw conclusions and insinuate wrong-doings if the absence of complete transparency.

    You would think someone like that would be only to willing to publish his tax return to set a good example. Yet he repeatedly refuses to do so when challenged.

    Can YOU think of an acceptable answer as to why?

  18. Ken, that’s an interesting paper, thank you.

    I suppose my experience of a pre-pack is in that 8% of pre-packs that don’t successfully transfer staff to the new employer.

    In this particular case, staff and trade creditors remained unpaid for three months while being assured that money was on the way from a big investor. Insolvency was formally declared after a creditor began legal proceedings – the business was not solvent for some time before then. It appeared that the secured creditor, owner and administrator colluded to get the best deal for themselves (the administrator happened to be the auditor for the secured creditor and the business).

    I heard that our owner had refused an offer for the whole business – intellectual property, equipment etc and staff. The intellectual property ended up with another company – it was a bit murky, there were rumours of a connection but nothing substantive.

    Staff ended up with statutory wages, statutory holiday pay and statutory redundancy, which looks like the socialisation of bad and/or cynical business decisions.

    The owner may have lost money in the business, I don’t know, but he certainly didn’t “lose everything” – he remained a multi-millionaire, which rankled. We might have been able to persuade a court to have him disqualified as a director, but there seemed little point as he was based in the USA.

    We paid for legal advice and obtained advice from ACAS and HMRC but there was nothing we could do. This was around the time of the financial crisis and a number of companies going under or lay-offs – it wasn’t easy to find alternative employment (some of us, including me, were fortunate). If we had quit at any point before being made redundant by the administrator we would not have been entitled to unemployment benefits for up to 26 weeks because we would have been deemed to have resigned. The business did not make anyone redundant until after insolvency was declared.

    One of those that gives pre-packs a bad name.

    There’s some info here and in the attached docs that may be of interest:

    http://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN05035

    There have been a number of changes to the legislation since my experience.

  19. If we had quit at any point before being made redundant by the administrator we would not have been entitled to unemployment benefits for up to 26 weeks

    But you said staff had been unpaid for three months. Why wouldn’t that count as dismissal?

  20. One thing I have always noticed is that those of a left wing mindset have a huge problem with accepting failure.

    The reason companies exist is so they can fail.

    I generally believe that many people simply cannot get their heads around a dynamic world and fight tooth and nail to keep a static world.

  21. But you said staff had been unpaid for three months. Why wouldn’t that count as dismissal?

    The advice at the time was that to claim dismissal we would have to exhaust the company’s grievance procedure – which obviously takes time.

    It may have been the case that the benefits office would have used discretion to award benefits. But we could not get that confirmed by the benefits office before committing to walking out.

  22. Companies failing can bring down multiple others too.
    Yet they have to be allowed to fail, wipes slate somewhat clean.
    Creditors can be reluctant to take the same risk again.
    People used to go on about the banks chucking money about before the crash.
    Some suppliers have been known to be far worse than the banks.
    Brand new business, no trading history, no business plan, no idea about the directors, lets lend £10k….
    Multiply that 5 or 6 times…. in the first year…

  23. @meiac

    No. Doesn’t provide an answer to the question which was about Murphy. Murphy wants more information about just about everything to be in the public domain. Just about everything except something that affects him.

    And his self-appointed role as champion of openess and transparency whilst hiding his own tax affairs is monumental hypocrisy.

  24. The advice at the time was that to claim dismissal we would have to exhaust the company’s grievance procedure – which obviously takes time.

    I’m not buying it. Your employer stops paying you, they’ve stopped employing you. Grievance procedure doesn’t enter into it.

    And if you carry on turning up for work, you’re making your problem worse.

  25. Your employer stops paying you, they’ve stopped employing you.

    AIUI that’s false, we would have had to claim constructive dismissal.

    I’m not buying it.

    Well, unfortunately your legal advice wasn’t available to us at the time, so we had to make do with ACAS, a friendly lawyer and a high street solicitor.

  26. “At the very least, it needs to explain why the dumping of pension scheme liabilities by other insolvencies is not investigated.”

    Because they were already lost and all you’re complaining about is that your *preferred* creditor didn’t get moved to the front of the line.

    In unrelated news, it looks like the true king of Wales is coming back to claim the throne.

    Though he keeps calling it Gondor for some reason.

    http://loweringthebar.net/2017/03/take-heed-and-rejoice-king-allan.html

  27. Jesus. If I take two days off without permission that’s considered job abandonment and I can be dismissed for cause.

  28. Andrew C

    I’m not aware of anyone (save probably the Nordics) saying that individuals should make their finances visible. From what I can see, this guy you’re all obsessed about, is talking about incorporated entities.

    As you are so well versed with the man, maybe you can show me a link to where he has said that natural persons should be made to make public their tax returns, or whatever. I am pleased to be put wrong, but I would be surprised that anyone would want to try that on. See McDonnell: winding his proposed stupid policy back until it’s something possible may be a political ploy to express that he’ll be as hard as he can within the law. It’s shallow populism, obviously.

    Murphy would only be a hypocrite if he demanded you or I to release tax information. If you don’t see that then you should look at your sanity about the issue.

  29. The Meissen Bison said:
    “Arguably, the ‘con element’ [of pre-packs] is where the previous owners pick up the assets on the cheap and start over with a clean(ish) slate.”

    That was my impression as well. The better position of secured creditors vs unsecured is part of general insolvency law, not specifically pre-packs. The impression one gets (which may be false anecdata) is that pre-packs seem to be used to allow the owners to dump the unsecured creditors and continue with the business.

    I’d have thought some sort of public auction process would be more fair for the creditors.

  30. @Richard – receivers and administrators are under a legal obligation to serve the best interests of the creditors (who appoint them). Pre-packs tend to be used when a prolonged auction process would lead to the company collapsing due to failure of confidence from suppliers/creditors or from customers taking their business elsewhere to avoid uncertainty. I’ve been involved in both forms (as an advisor not an IP) and sometimes the auction process can take a year or more. In a company that is either very sensitive to the cash cycle, or in a fast moving environment you don’t have the luxury of time

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