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Better pre-packs: SIP 16 revision

The insolvency regulators are currently revising the guidance to insolvency practitioners on pre-pack administrations.

This provides a golden opportunity to facilitate a change in behaviour in those few practitioners who have not complied with the intended spirit of the guidance, or who are minded not to comply.  It is crucial for the revised SIP to emphasise more prominently the need for the administrator to explain clearly to creditors why the process was in the interests of creditors as a whole.  On the other hand, over-emphasising a check-list of disclosure requirements would risk encouraging those who might still wish to avoid compliance with the intended spirit of the guidance to disguise their intentions through enthusiastic compliance with the detail.  It would also risk discouraging constructive regulatory review, which should concentrate on fundamental compliance with principles.

An important point to emphasise is that an insolvency practitioner acts in the interests of creditors throughout his involvement in a pre-pack, both before appointment when advising the company (at which time the directors’ duties to creditors have supplanted their duties to the members) and when acting as an administrator.  What creditors want from IPs – certainly those creditors who have spoken to me, anyway – is an explanation of why the pre-pack was undertaken and why it was in their best interests.  In giving such explanations it may well be necessary to verify any assumptions they include.

The principle of transparency of the administrator’s dealings is crucial to creditors’ and public understanding of pre-packs.  Perceived threats to the administrator’s objectivity have to be managed and a critical component of any such management is clear communication.

 

 

Date: 22nd May, 2013
Author: Chris Laughton

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