Opinion: Crash of Kinetics exposes bad practice

Grant Prior 12 years ago
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The sad saga of Kinetics has highlighted some serious problems with a controversial accounting practice which allows failed firms to be bought by their former owners.

Pre-pack deals are becoming more prevalent in construction as accountants push them as the “least-worst” scenario when contractors call in administrators.

The failed companies are sold in a pre-arranged deal – often to the former managers or owners.

Backers of pre-packs argue they save jobs compared to a traditional administration.

But opponents dismiss them as a means for failed bosses to dump their debts and start again with a clean slate.

The Kinetics debacle is a powerful argument for the antis. Kinetics failed – was saved in a pre-pack – then collapsed again just weeks later.

Kinetics managed to dump millions in debt first time round but still couldn’t survive.

Perhaps the basic flaw with pre-packs is that they trust a bunch of people who have run a company into the ground to suddenly become successful again.

And that’s before the ethics of the whole process are put under the spotlight.

Innocent subcontractors are the ones who suffer because they end-up with unpaid invoices.

They often have little choice but to continue working with the phoenix firms and simply swallow the fact that work has been carried out for nothing while the client continues to pay management handsomely.

Kinetics blamed the cut-throat housing maintenance market for its demise.

That market has already done for Rok and Connaught so why did Kinetics think its whole failed business model would change overnight just because it had stiffed its supply chain?

Administration is always an awful business but pre-packs are not the answer and Kinetics has shown how wrong they can go leaving a trail of debt and resentment across the industry.

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