IPs hit back after MPs' pre-pack slurs

If insolvency practitioners thought they were seen as the white knights of the recession, MPs have shattered this view by claiming their conduct in pre-packaged administrations is little more than abusive.

MPs savaged IPs and the Insolvency Service last week in making calls for the profession to lift the lid on the secretive process, warning their reputations were on the line.

The broadside came only days after the Insolvency Service, the government body scrutinising the profession, largely gave pre-packs a clean bill of health.

MPs are convinced the process is used as a quick-fix solution which disadvantages unsecured creditors, but leading members of the profession said the IPs are only adapting to the environment as more stricken companies seek a quick buyer without going into a formal administration that would potentially undermine the value of the business.

Frank Simms, the new head of the Insolvency Practitioners Association and one of the profession’s most eminent figures, backed pre-packs while supporting government plans to make more cash available to help administrators keep trading businesses.

‘The absence of funding is one of the factors driving up the number of pre-packs and, while we support the pre-pack process, this will help to give practitioners other options.’

James Money, of Smith & Williamson, said: ‘Without funding, an administrator can’t trade a business without being personally at risk.

‘IPs using pre-packs must abide by a recently introduced rule, SIP 16, which requires practitioners to explain to creditors what they have done in arranging the pre-pack.

‘If SIP 16 is followed, IPs should have confidence about completing the sale of the business because it will have been done in the best interests of the creditors.’

The Insolvency Service has been forced to come out and reassure the public that the closer scrutiny is designed to ensure that creditors are not being treated unfairly through the abuse of pre-pack sales.

But this has done nothing to appease the detractors at Westminster, leading to IPs countering with demands for more powers.

Simms added: ‘This is a critical time for insolvency practitioners. They have a central role to play in rescuing ailing companies and resolving individuals’ debt problems.

‘We must do everything we can to equip them with the necessary legislative tools ­ not just to make the job of administration or voluntary arrangement more effective, but to build public confidence in these and other processes.’