Ethics code to tackle pre-packs

David Kerr, chief executive of the Insolvency Practitioners Association

The rules governing controversial ‘pre-pack’ administrations are to be tightened up by a new code of ethics on company wind-ups.

Statement of insolvency practice 16 will see IPs make disclosures on topics such as valuations when reporting to creditors after the sale of a company has been completed.

David Kerr, the chief executive of the Insolvency Practitioners Association, said there would be a disciplinary element to the new code, which would mean IPs could find themselves open to disciplinary action from their governing body if they could not explain a deviation from the rules. ‘IPs [will be able to] refer to a statement of best practice and also say to the rest of the world “This is what you can expect from an IP reporting on a pre-packaged sale in administration”.’

Rules on pre-packs are to be set in stone for the first time, mainly to put creditors’ minds at rest that IPs are getting the best value for companies out of a pre-pack, which are disliked by some, and also to ensure best practice in the insolvency community.

Pre-packs involve the sale of a company being lined up before it has officially entered the administration procedure.

Some have complained that it is an easy way for company directors to keep hold of companies and shed debts.

The move has been made as the prospect of more business failures looms on the horizon.
As the number of insolvencies continues to rise steadily, Kerr said that this was the first time the Enterprise Act would be put to the test.

The rules, which became active in 2003, make it a lot easier for companies to enter administration.

Companies can now be put into the hands of administrators within a few hours. However, the expected spike in insolvencies has left IPs unsure as to whether the rules would be able to cope under the weight of increased demand.