A Pre Pack Administration Review Leads to Changes – Changes to Pre-Packs
For those of you with an interest in the economy, in sport, or who have simply read my previous articles, pre-pack administrations are becoming familiar with you as a form of recovery for insolvent businesses. Unfortunately, high profile pre pack administrations such as HMV, Dreams, Rangers FC and Blockbusters will certainly not have helped to build confidence with you on the process as a result of their lost jobs, poor return for creditors or bad publicity however rest assured, these cases are not the norm in the industry.
A review in July of pre pack administrations by Vince Cable MP has now lead to changes being made to the process to help restore faith and better achieve the goals set when it was introduced back in 2009. The 1st of November 2013 saw these amendments to the disclosure requirements of Pre-Packs coming into effect, as detailed in statement of insolvency practice 16 (being the now mandatory guidelines which insolvency practitioners must follow for pre pack administrations). The changes are intended to give a clearer, detailed and timely explanation of what has happened and not just to give bulleted information from a checklist of facts. It is hoped that these changes will help to achieve greater transparency of the pre-pack process to ensure that creditors are able to better access whether the administrator is working within the interests of the creditors whilst also improving compliance to the process by IP’s.
The main changes include:-
- Reducing the deadline to notify creditors to of a pre packaged sale from 14 calendar days to 7 calendar days from completion of sale;
- Making additional disclosures including greater details on valuations of assets, sales to connected parties, the extent of the IP’s prior involvement with any party connected with the sale, the marketing attempts made and the details of the consideration for the sale;
- Greater clarity of the role of the IP both pre appointment and post appointment therefore giving greater importance to the contents of IP engagement letters; and
- Enclosing a copy of the SIP 16 disclosure within the administrators proposals when sending to Companies House.
Pre-Pack Changes are Positive for the Industry
As a pre pack administration specialist, who has always been compliant to the disclosure requirements of SIP 16, I welcome the amendments made as this can only help to improve the reputation of IP’s and the pre-pack process generally whilst also better educating the public and press on the full considerations IP’s make when evaluating whether the purposes of administration (of achieving a better outcome for creditors or a secured/preferential dividend) can be achieved.
It is also important to note that the findings of Vince Cable MP were that the vast majority of insolvency practitioners were now fully compliant to the pre-pack disclosure requirements and therefore my view is that the insolvency industry is being let down by a small number of rogue IP’s or bad reporting from press which can only improve with greater information being supplied.
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See here for the latest news on revisions to pre-packs as proposed in January 2015