IPs need tougher sanctions in pre-packs, says BIS

by Rachael Singh

More from this author

06 Feb 2013

  • Comments
Insolvency Service

THE INSOLVENCY profession needs tougher sanctions for failing to comply with pre-packs according to a Business Innovation and Skills (BIS) select committee.

A review into the Insolvency Service by the committee highlighted various concerns with pre-packs, most notably they need greater transparency and harsher sanctions.

"Pre-pack administrations continue to cause concern," said the chairman of the Business, Innovation and Skills Select Committee Adrian Bailey MP, adding: "Greater transparency, higher levels of compliance, and a stricter regime of sanctions are needed."

A pre-pack administration is where the sale of the business is marketed prior to the company entering administration and subsequently sold on appointment of administrators. However, the administrators must submit a SIP16 report outlining why the pre-pack was chosen as the best course of action for creditors.

Lee Manning, president of insolvency trade body R3, agreed with the committee's findings. He said: "R3 strongly supports the suggestion of providing feedback to insolvency practitioners where the SIP 16 report has been judged non-compliant, to prevent repeated mistakes."

However, he argues that governing body the Insolvency Service (IS) could be clearer on what is needed to make a SIP 16 report more compliant.

"Insolvency practitioners should be informed of what precisely the IS expects to be included in the SIP 16 report. We believe these changes will produce better SIP 16 compliance and will go some way to improving confidence.

"R3 believes there are further measures which should be introduced in order to boost transparency and confidence in the pre-pack process, such as giving creditors the option to appoint an independent liquidator to examine a connected party sale."

The BIS committee was focused on IS and highlighted various other issues including concerns that the body is under resourced to handle director disqualifications.

Currently all administrators must complete a report (known as a D1) to the Insolvency Service outlining the role the director played in the business running into trouble and whether they should be sanctioned.

IPs have been complaining for years that the Insolvency Service is under-resourced to handle this process.

The BIS select committee has now agreed, stating: "Without an increase in resources the investigations unit will be unable to increase the number of cases it can prosecute which will further undermine stakeholder confidence."

"Any dilution of the enforcement activity would send the wrong message to delinquent directors," it added.

Lee Manning added: "We strongly believe that disqualification rates should increase; ten years' ago 45% of ‘D1 reports' sent to the Insolvency Service by IPs led to a disqualification of a director, today this has dropped to just 21%. An increase in resource, and efficiencies such as electronic reporting would see more ‘delinquent' directors prosecuted, thereby protecting well-run UK businesses." 

Visitor comments

blog comments powered by Disqus
display:none

Add your comment

We won't publish your address


By submitting a comment you agree to abide by our Terms & Conditions

Your comment will be moderated before publication

Submit
  • Send

Appointments to University Committees

University of Glasgow 120x60University of Glasgow - Glasgow - unremunerated positions

 

 

Newsletters

Get the latest financial news sent directly to your inbox

  • Best Practice
  • Business
  • Daily Newsletter
  • Essentials

Careers

Search for jobs
Click to search our database of all the latest accountancy roles

Create a profile
Click to set up your profile and let the best recruiters find you

Jobs by email
Sign up to receive regular updates with the latest roles suitable for you

Briefings

budget-management

Why budgeting fails: One management system is not enough

If budgeting is to have any value at all, it needs a radical overhaul. In today's dynamic marketplace, budgeting can no longer serve as a company's only management system; it must integrate with and support dedicated strategy management systems, process improvement systems, and the like. In this paper, Professor Peter Horvath and Dr Ralf Sauter present what's wrong with the current approach to budgeting and how to fix it.

cchcover

iXBRL: Taking stock. Looking forward

In this white paper CCH provide checklists to help accountants and finance professionals both in practice and in business examine these issues and make plans. Also includes a case study of a large commercial organisation working through the first year of mandatory iXBRL filing.