Erm, no. Trust the EU to get the wrong end of the stick here:
Brussels has declared it wants to encourage more \”second chance\” entrepreneurs like Mike Smith of engineer Derrick Services Ltd (DSL) to reverse the European trend of punishing honest business failures. It wants to echo the US approach of giving entrepreneurs credit for trying.
The Commission has profiled DSL and a dozen other small and medium-sized companies (SMEs) from across the continent to mark the launch tomorrow of European SME Week.
But some of DSL\’s former suppliers in Norfolk are angry about the debts they incurred when the original business went bust. Going into a pre-pack administration temporarily saved 400 jobs at DSL but suppliers that could not absorb the debts had to lay off staff.
The point of pre-packs, of simple bankruptcy procedures, is not to give entrepreneurs a second chance.
Far from it in fact.
It\’s to give businesses a second chance. The distinction is an extremely important one.
So, we\’ve a business, an organisation. It\’s a strange mixture of all sorts of things. Some physical assets yes, bit of land, machinery. And lots and lots of very specialist knowledge. Who are the customers, the suppliers, what do they all want, how do we do this etc.
And business value is becoming, more and more, embedded in that nebulous shit than in the land and machinery. At the extreme, knowing the phone number of and being on good terms with, the major buyer in your sector can be worth more than an entire office block (no, really, over the years, it can be).
So, when it all fucks up, what do we want to do? Well, first, of course, we want to take all the money away from the entrepreneur who fucked up. Risk and reward sorta stuff. So, that\’s the bankruptcy.
Second, we want to asset strip the fuck up. Move assets from their current low value use to a higher value use: create wealth. Sometimes such an asset strip will be about land: stick a supermarket, a small business incubator, where the no longer desired car factory was.
But increasingly it\’ll be wanting to preserve that set of knowledge within the company as that is the most valuable thing around. So don\’t break it up, treat it as the asset it is and whisk it away into a new legal structure.
Another way of putting this. Sometimes the whole is greater than the sum of the parts. The asset to be stripped is thus the whole. Other times the parts sum to more than the whole: strip them separately.
Pre-pack bankruptcies are a way to do the former.
Sod all to do with giving entrepreneurs a second chance.