Page 144 - (DK) The Business Book

142 WHO BEARS THE RISK?

Suppliers are among the last to receive
compensation for their goods or services
if a business goes bankrupt. If, in the
UK, it enters “pre-pack administration,”
suppliers might receive nothing at all.

liabilities. This method can be
especially controversial, since it
can allow the owners of the original
business to sell the “pre-packaged”
new entity and still be involved in
the business. In August 2008 the
London-based restaurant business
of Michelin-starred chef Tom
Aikens went into administration.
It was bought by TA Holdco Ltd.,
of which Aikens was appointed
partner and shareholder. Around
160 suppliers were left nursing
losses that would never be protection, the creditors can find personal pension funds in Enron
recovered. However, by early 2010 themselves in a riskier position shares. When the business was
Tom Aikens’ business achieved a than the shareholders. liquidated, employees not only lost
financial turnaround, and opened their jobs, but also their pensions.
three new ventures in London. Employees at risk When the collapse of the business
When pre-pack administration Staff employed by a business is was becoming clear, Enron froze
is utilized, suppliers are revealed also at risk when a company fails. its pension fund, preventing
to be in a much more vulnerable When US energy company Enron employees switching their pension
position than might otherwise be collapsed in 2001, an extraordinary holdings out of Enron shares.
expected. The financial losses feature of the unfolding story was Employees can also be
incurred by Aikens’s restaurants the plight of many employees. vulnerable due to the predations of
were effectively absorbed by Unlike the senior executives, rank- the investment market. If a company
suppliers, not shareholders. In a and-file staff had been part inspired is bought through private equity,
world of pre-pack administration and part browbeaten into “showing employees can find themselves
and Chapter 11 bankruptcy faith in Enron” by investing worse off if the business fails. A
private-equity purchase is when a
publicly traded company is bought
by a “private-equity group,” often
through a leveraged buy out, where
“Heads I win”—in good
times, the business the assets of the purchased
owner stands to gain, company are used as security to
whereas the position of “Tails you lose”—in bad borrow funds with which to finance
employees changes little. times, the owner is protected the purchase. In so doing, the burden
from losses, but the business of risk is on the business (and its
and its employees suffer.
employees), not on the owners.
The UK franchise of Canadian
underwear business La Senza
Private-equity ownership collapsed in 2012, with 1,100
is typically structured in an
asymmetric way. If things go employees losing jobs. In cases like
well the private-equity owner this, the staff has little to gain when
gains, and if things go badly things go well, but everything to
the subsidiary business loses. lose when they go wrong. Suppliers