Newbury Investments (UK) Ltd is a financially strong group which will underpin Norbain and allow Norbain’s suppliers, customers and employees to be confident in its future trading.

Norbain Press Release, emphasis mine

Debts that can’t be paid, won’t be.

Michael Hudson

I’d promised someone a post on something else (although, I don’t think he’s actually that interested), but my attention was almost immediately diverted by the news of Norbain being bought out under distress.  This is big, big news at work, as Norbain are our biggest distributor, they owe us a lot of money, and we had no idea this was happening.  Norbain are claiming that following their pre-pack administration, which was entered and completed in a day, all the money they owe us is…well….not owed to us anymore.

What’s particularly galling about this is this press release (I’m assuming it came from KPMG), which suggests that although the formal process only took a day, this had been 13 weeks in the planning.  13 weeks where they happily continued placing orders that, even though we have fulfilled them, they appear to have had no intention of paying for.

Not to mention the suggestion that KPMG have saved jobs.  I can’t imagine that there won’t be suppliers going under following this (although as things stand we’ll survive) and bear in mind that Norbain are just a middleman.  It’s not like our business models are predicated on Norbain’s existence.

The icing on the cake was that yesterday, after this all came out, one of the admin team got a call from Norbain.  Apparently, we made a mistake last week, charging them shipping when we shouldn’t have done.  They wanted their £15 back!

Anyway, this all got me thinking, and reminded me of the Rangers debacle and other such recent shenanagins.  I’d love to know what other creditors Norbain have (other than suppliers I mean), whether they were involved in this process at all (I’m thinking bank maybe?) and what they got out of it.  The wiki article I linked earlier mentioned an acedemic criticism of pre-packs: that they favour the secured creditors.

It’s, for me, another example of the strangeness of debt-financing of a company as opposed to equity-financing.  A shareholder is the last person to get any money in a bankruptcy, but a bank lender is (as I understand it) one of the first in line although their position and relationship to the company is not far removed from that of a shareholder.  Makes less and less sense everyday.

Update 5/7/12: Came across this commentary that confirms my understanding that banks are high up (actually top) in the food chain in a bankruptcy.  Seems to be because of the ‘secured’ nature of the lending.  In my experience, secured lending means land-debt.  Once again, rent-seeking comes first.  And people wonder why the economy’s broken.