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