The Rise of Pre-Packs as a Restructuring Tool: Theory, Evidence and Policy

Abstract

The use of pre-packs as a restructuring tool has been traditionally popular in the United Kingdom and the United States. In recent years, however, several jurisdictions around the world, including Singapore, India, Spain, the Netherlands and the Philippines have promoted the use of pre-packs. By shortening the length of insolvency proceedings, pre-packs have the ability to reduce the costs of financial distress—especially those associated with the loss of reputation, employees, suppliers, consumers and goodwill. Thus, pre-packs can help maximise the value of the firm for the benefit of debtors, creditors, and society as a whole. However, the conflict of interests, lack of transparency and various forms of opportunistic behaviour that could potentially arise from the use of pre-packs have raised some concerns about the desirability of this restructuring tool. This article analyses the concept and types of pre-packs generally found around the world, as well as their similarities and international divergences. It will also review the empirical evidence on pre-packs with the purpose of getting a better understanding of the actual features, risks and outcomes of this restructuring tool. It will conclude by discussing whether countries should promote the use of pre-packs and, if so, how this mechanism can be adopted to serve as an efficient restructuring tool while providing effective protection to creditors.