Pre-packs are still good for creditors
The Government’s Insolvency Service says:
“We maintain the view that in the right circumstances pre-packs can be a useful tool”.
This echoes our previous commentary on pre-packs noting that insolvency procedures operate in interests of creditors, and that creditors lose not because of the insolvency mechanism used, but because the company failed in the first place.
At a recent R3 Breakfast Briefing to insolvency practitioners, Mike Chapman, the Head of Insolvency Practitioner Regulation at The Insolvency Service, confirmed that the Service has been tackling ignorance about the position of unsecured creditors in insolvency legislation generally, but he added that it was difficult to engage effectively with creditors and that he would welcome suggestions about how best this might be achieved.
The focus of the briefing was Statement of Insolvency Practice 16 (“SIP16”), which requires administrators to report fully to creditors immediately on the execution of a pre-pack sale.
The Insolvency Service position is very clear on the SIP16 requirements being principles based:
“It is important that [creditors] are provided with a detailed explanation and justification of why a pre-packaged sale was undertaken, so that they can be satisfied that the administrator has acted with due regard for their interests.”
A checklist approach to covering all the points mentioned in SIP16 may be found to be non-compliant if it is not clear to creditors why the pre-packaged sale was undertaken.
That is, of course, the point. Transparency means enabling creditors to understand why a particular course was followed and it is transparency that will enable creditors to have confidence in insolvency practitioners’ activities on their behalf.
Chris Laughton is a Restructuring & Insolvency partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Chris you can call him on 020 7353 1597.
Date: 21st January, 2010
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