Opinion splits over pre-pack transparency reform

Are two insolvency practitioners better than one? That is the question facing
the insolvency industry as it looks to stave off continued criticism of its
management of pre-packaged administrations.

Chris Laughton, insolvency practitioner at Mercer & Hole and editor of
R3’s magazine Recovery, has called on the profession to split their pre-pack
roles, so one IP undertakes the pre-appointment work and another takes the
appointment and executes the transaction.

Laughton said: “There is so much concern from creditors on pre-packs that
anything we can do to make it more transparent, more robust and clear of
conflict the better.”

He added that this may not be appropriate for all cases, but believes it can
increase transparency in a system dogged by “perceived conflict”.

Laughton’s clarion call comes as the Office of Fair Trading announced an
investigation into the corporate insolvency market, looking at fee levels and
recovery rates, plus continued criticism of the pre-pack process.

Laughton disputed that having two sets of IPs would increase costs, claiming
that the “additional fees are marginal”, and there was nothing “extra” in the
process to produce higher fees for the business.

But not all in the profession are so keen for a splitting of roles around
corporate insolvency.

Mike Jervis, partner at PricewaterhouseCoopers, said the proposed strategy
could create problems for the incoming IP. “They will have less knowledge of the
business, making it more time-consuming,” he said. Going through the paperwork
of another IP could also slow things down as “different people have different
ways of doing things”.

He added: “One of the big issues in a pre-pack for a business is continuity
for creditors.”

Jervis however believes that a move in this direction is effectively
pointless as SIP16 rules which make IPs report on how they arrange a pre-pack
deal, worked well to “provide a good background for transparency” already.

The Insolvency Service introduced SIP16 in January this year.

IN OUR VIEW

Although SIP16 is a great idea and has helped give pre-packs a better
name it hasn’t tackled the wider issue. Creditors still feel they are being hard
done by in this type of administration, as they are often left in the dark until
the deal has been signed.