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
‘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
‘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
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’
‘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.’
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