Insolvency Service
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Government emphasises need for transparency in ‘pre-packs’
Business Minister Ian Lucas has taken decisive steps to ensure confidence in the pre-packaged administration sale process with a range of possible new measures aimed at making the system more open.
He was reacting to an Insolvency Service report [1] issued 19 March which revealed that in a third of cases, insolvency practitioners were failing to fully comply with the industry’s own rules on transparency.
In a consultation launched today (31 March), the Minister puts forward options including strengthening the laws surrounding the use of ‘pre-packs’. He is also seeking views on automatic scrutiny of all ‘pre-packs’ by the Official Receiver, a trusted and independent public official.
Ian Lucas said:
“Pre-packs are a good option for companies in difficulty as they can preserve value and jobs. But if business and the general public are to trust the process, it must be transparent.
“That was why rules were introduced a year ago to ensure prompt and valuable information was given to creditors. But this is still not happening in all cases.
“So today I am putting forward a range of possible measures designed to ensure that pre-packs are not only being used responsibly and appropriately but, crucially, are also seen to be doing so.”
The consultation also includes proposals on possible conflicts of interest, such as whether or not the person advising on a pre-pack should go on to become the administrator and whether court or creditor approval should be required for pre-pack deals involving connected parties.
The consultation can be found at the Insolvency Service website and closes on 24 June 2010.
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[1] Insolvency Service ‘Report on the Operation of Statement of Insolvency Practice 16 July – December 2009’
Notes to Editors
1 Pre-packaged sales are a process used by insolvency practitioners to sell the business and assets of an insolvent company prior to formal insolvency proceedings, usually administration. The term ‘pre-pack’ has become widely used to describe these sales, where the purchaser is identified and the sale is agreed in advance, then executed on or shortly after the formal appointment of an administrator.
Pre-packs are used in about a quarter of administrations (expected numbers in 2009/10, about 1,250 out of some 5,000 administrations).
2 A Statement of Insolvency Practice (SIP16) was introduced in January 2009 in order to increase the transparency of, and confidence in, the pre-pack procedure. SIP16 requires administrators in pre-packs to provide creditors with a detailed explanation and justification of why a pre-packaged sale was undertaken , so that creditors can be satisfied that the administrator has acted with due regard for their interests.
3 he Insolvency Service has been monitoring insolvency practitioners’ compliance with SIP16 since it was introduced. Our monitoring has shown that despite the issuance of further guidance as to how insolvency practitioners should comply with SIP16, overall compliance rates did not improve during 2009. Our second report published in March 2010 Insolvency Service ‘Report on the Operation of Statement of Insolvency Practice 16 July – December 2009’) shows that for the final six months of 2009 more than a third of SIP16 disclosure statements issued by insolvency practitioners were not fully compliant.
4 The Insolvency Service administers the insolvency regime, investigating all compulsory liquidations and individual insolvencies (bankruptcies) through the Official Receiver to establish why they became insolvent. The Service also authorises and regulates the insolvency profession; deals with disqualification of directors in corporate failures; assesses and pays statutory entitlement to redundancy payments when an employer cannot or will not pay employees; provides banking and investment services for bankruptcy and liquidation estate funds; and advises ministers and other government departments on insolvency law and practice.
5 Media enquiries should be directed to: -
Denise Rawls, Press Office Manager 020 7674 6910
Ade Daramy, Press Officer 020 7596 6187
Contacts:
Ade Daramy
Phone: 020 7596 6187
ade.daramy@insolvency.gsi.gov.uk
