Pre Pack Administration

The Latest Changes in the Insolvency Profession…

The Insolvency Profession has seen a whole raft of changes to legislation and guidelines being introduced and proposed in recent months and therefore below is a brief summary of each of the changes and how it may affect you or your client:-

Estimates of Fees – Insolvency (Amendment) Rules 2015

The 1st of October 2015 saw the introduction of the Insolvency (Amendment) Rules 2015 (SI443) which state that Insolvency Practitioners (“IPs”) are now required to provide an estimate of their fees to creditors, in good time, in order that more fee information is offered to creditors for them to vote on fee approval requests. The fee estimate will also act as a cap of the fees able to be drawn if approved.

This change is by far the biggest change in our profession for some time and has causes quite a stir amongst IPs who, as you can imagine, all have concerns that the changes will not only cost a great deal to ensure compliance but may also result in lost work.  However, for those of us whose charges are already reasonable and whom have given a good amount of detail in correspondence before now, it has just been a matter of getting our heads around what level of detail must be supplied and when it must be supplied.  As this is not in place for most, all that remains to be seen is whether the greater amount of work to be done by IPs results in a greater level of input from creditors or whether there will be little or no change in input from creditors (barring a few aggrieved ones resulting in insolvency appointments being turned down as not cost-effective).

The estimates of fees are likely to be dealt with in a number of different ways by each IP as the basis of fee approval changes but on a whole, I believe that the majority will provide fee estimates for all pre appointment work in the initial correspondence and seek approval at the first meetings, then for post appointment works, fee estimates will be provided at the first meetings and then a meeting either physical or by correspondence will then be held soon after to approve the post appointment fees.

If you have received a notification of insolvency from an IP and feel that they have not complied with the new changes to provide fee estimates, or you feel that the fees estimated are too high, give us a call and we would be happy to assist you.

The effect on the insolvent companies and their creditors is hopefully more transparency and control.

Maintenance of Essential Supplies – The Insolvency (Protection of Essential Supplies) Order 2015

October also saw the introduction of The Insolvency (Protection of Essential Supplies) Order 2015 which gives IPs the power to request that any essential supplies to insolvent companies be maintained as opposed to being solely utilities.  Therefore for things such as web hosting and any supplies which are required for continued trading these can be order to be continued providing their cost is paid as an expense of the insolvent estate.

The effect of this will be great as it is one less hurdle to jump over when considering whether to continue to trade (to maximize the realisations) and therefore may encourage more trading to achieve more going concern sales or better recoveries due to selling of final stocks in trading scenarios.

No IP Case Record

Insolvency Practitioners previously had to maintain a record of all major case details and dates, either as a record specific to a case or as a record specific to each IP.  However this is no longer required for any cases with appointment dates post dating 1st April 2015.  The new requirement simply requests that information sufficient to show and explain the administration of the case and decisions made must be kept.

Not so much of an effect on anyone by IP’s here but great news for us!

An Increase in the Bankruptcy Petition Level

The debt a person/debtor must have to make themselves Bankrupt must now be a minimum of £5,000 as opposed to the previous amount of £750.

In reality this is unlikely to have much of an effect as it is fairly rare for a debtor to be made bankrupt with such a low debt level but may mean that debt recovery/collection companies will have to threaten a different action if they are chasing a lower level debt which remains unpaid.

Debt Relief Orders – Thresholds Increased

The maximum limits to debt relief orders are being increased in order to make them more accessible therefore the new maximum debt level will be £20,000 (from £15,000) and new maximum level of assets will be £1,000 from £300)

I do think that this will see an increase in DRO numbers as it is quite common to see debtors with debt levels of 15-20k from credit cards and loans so I am all for this one!

Appointment and release of Administrators

There will no longer be the need for Directors to issue a notice of intention to appoint an Administrator to the Company or any other prescribed persons where there is no qualifying floating charge holder  Therefore, the appointment process should be streamline causing less unnecessary delays.

The same goes for release, as going forward, the Administrator can obtain his release as Administrator, without gaining approval from the creditors, on cases where it has been stated (under paragraph 52 of Schedule B1 of the Insolvency Act 1986) that no creditors meeting is to be held as no dividend to creditors (other than the prescribed part) is to be made.  Therefore it means a simple release rather than needing to attempt to get approval to release from creditors who are not receiving a great deal from the process.

A New SIP 16 (Pre Pack Administration Sales)

As of the 1st and 2nd of November 2015 a new SIP 16 has been introduced, with the requirement of the proposed pre pack purchaser to seek approval from a pool member to the proposed sale if they are connected.  A viability statement must be produced in this regard and a greater level of marketing information and or duties is also required.

Further changes in the SIP now require the SIP 16 sale disclosure statements to be forwarded to the authorising body of the lead IP as opposed to the Insolvency Service and IPs must ensure that their choice of agent have PI insurance cover in place.

In my view, the effect of these changes, and ever increasing requirements of IP’s when considering Pre Pack Administration, will almost certainly see the number of pre pack administrations decrease.  It may also result more unconnected purchasers being put in place in order to avoid the need to approach the pre pack pool or the purchasers ignoring their requirement to approach the pool altogether.  As an avid user of pre pack administrations I championed the process as a means to ensure that business continuity can remain and a going concern sale successfully achieved but the scrutiny on the process by authorising bodies and the disproportionate amount of reporting, will lead many to complete pre pack liquidation sales, often with breaks in trading and be likely for less sale amounts reducing the returns for creditors.

Not one of their better ideas! – See here for a detailed article on the specific changes to SIP 16 as written by the Compliance Alliance.

A New SIP 9 (Payments to Office Holders) – 1st December 2015

The final of the major changes to come into force recently is the issue of a new Statement of Insolvency Practice 9 which was issued last week but will come into effect on 1st December 2015.  The new SIP will see an emphasis placed on more detail being supplied to creditors in advance, to allow creditors to better ensure that fees and expenses are fair and reasonable in comparison to the level of works being undertaken.  It also gives the guidelines for IPs on how to disclose their fee estimates to ensure a better quality narrative.  See below for a link to the new SIP 9

Powers of an Administrator

In Line with Liquidator’s powers, Administrators now have the power to bring actions of fraudulent or wrongful trading meaning that if wrongdoing of this nature is uncovered by the IP they no longer have to bring directors to account with a more general action of misfeasance or transfer the Case to Liquidation to bring all claims.

Assignment of Rights of Action

Both Liquidators and Administrators now have the right to assign a the rights of actions in relation to preferences, transactions at undervalue and wrongful/fraudulent trading.

The effect of this will hopefully mean that greater recoveries can be made in insolvent estates as less claims will fall by the wayside if there are a lack of fees or  lack of appetite by the IP to take on such actions.  I also understand that the proceeds from these claims are to be set aside and therefore not available to floating charge creditors.

After acquired property in Bankruptcy Proceedings

The process for clawing back properties acquired after Bankruptcy Orders has changed with the hope of making it simpler to do.

This isn’t really my field of expertise so I am unsure of the changes and whether they will help but if streamlined, this can only mean a better return to creditors due to less costs in the clawback process.

SIP 1 changes

IPs are now required to explain in their correspondence with creditors that they are bound by the Insolvency Code of Ethics and disclose where details of these may be found.

Personally I would have thought that this was self explanatory and therefore unnecessary to have to report. I can understand their thought process but I believe that adding in additional reporting requirements such as these dilutes the main information being disclosed in each report and is yet another item which will cause knuckles to be wrapped if missed out by mistake.  Lets hope that the continual increase in content requirements doesn’t lead to less reports being read by creditors as their input is vital in deciding upon the best outcome for the general body of creditors.

That’s the last of them for now but there are already proposals in place to change the detail required within director conduct reports, the period they must be submitted by and the availability of the reports to the general public for June 2016.  Therefore look out for a specific article on this in due course.

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