Another week. Another high-profile company collapse. Another pre-pack administration and another bad week for small creditors, investors and employees.
The well-publicised decline of Scottish beer brand Brewdog reached a depressingly familiar conclusion when it entered into administration on Monday 2nd March, only to be immediately bought out by US pharmaceutical and cannabis brand Tilray.
Read more: Punk? Pull the Other One! Brewdog Sale Leaves a Sour TasteThe buy-out post-administration was all part of the plan, of course. That’s what a ‘pre-packaged’ administration does – administration in effect becomes part of the terms of purchase, wiping debts from the company being taken over and allowing the buyer to complete the deal at a more attractive price.
In this case, that price was £33m and bought Tilray the brewery and 11 of the brand’s pub and bar portfolio. The other 38 are to close, with the loss of just under 500 jobs. Those Brewdog employees are not the only losers from the deal. The brewery’s now-infamous ‘Equity for Punks’ scheme, a crowdsourced investment round that offered ordinary customers stakes in the company and perks like discounted beer, raised an estimated £75 million before it closed in 2021.
The scheme was sold as an opportunity for customers to ‘share in the success’ of the brand. As unsecured investors, the estimated 200,000 ‘equity punks’ who pumped money into the company won’t get a single penny back following the takeover by Tilray, largely because co-founders James Watt and Martin Dickie subsequently sold a £100m stake to private equity group TSG on terms that guaranteed small investors would always play second fiddle to the big capital fund. Not very punk.
More problems with pre-packs
The sorry outcome also helps to underline the often controversial nature of pre-pack administrations, although it should be noted that this does not appear to be an example of ‘pre-pack abuse’, as the company has been sold to an entirely unrelated entity. Which is not the same, for example, as the recent case of Premier Group Recruitment, which went into administration with unpaid debts of £3m, only for its former owner to use pre-pack rules to buy the business back for a song, now clear of its previous debts – and then promptly announced he was taking all staff to Las Vegas!
n the Brewdog case, it’s likely that, without the pre-pack, the debt-laden business would not have been attractive enough for anyone to take on and would have ended up being wound up. That’s precisely what pre-packs are intended to prevent, and Tilbury at least seem committed to keeping the business going.
But that’s small comfort for the 500 workers who now find themselves unemployed. And it doesn’t hide the fact that using administration rules to clear debt has facilitated a sale price that leaves many creditors out of pocket.
Ultimate blame for that, however, must lie with Watt and Dickie, who liked to talk a big game about running a company differently, but were ultimately dogged by controversies including accusations of a toxic workplace culture, abandoning paying staff the real living wage, and Watt deciding to go full Elon Musk by launching what he billed as a ‘shadow-DOGE’ to tackle waste and inefficiency in government – all in no official capacity whatsoever.
The sum effect of all of this was that the pair managed to run a business once valued at £2bn to the brink of collapse. Having finally sold out, they walk away as multi-millionaires, while tens of thousands of small investors come to terms with the fact that they will never see their cash again and 500 former employees look for a new job.
Punk? Pull the other one.
