Insolvency forum challenges pre-pack transparency

Regulators must improve the rules by which insolvency practitioners report on
pre-packaged administrations, to avoid it being a mere box-ticking exercise,
according to a powerful new forum.

The forum, organised by the Insolvency Practitioners Association, found that
the rules by which insolvency practioners (IPs) report on pre-packs, known as
SIP 16, failed to contain enough substance for practitioners to justify to
regulators that choosing a pre-pack was the right insolvency choice for their
client and creditors.

Pre-pack administrations are controversial because the insolvency
practitioner arranges the sale of a business before it enters formal insolvency,
with some of the debts wiped clean when the new owners – often the existing
management – take over.

Rules to watch over the pre-pack process were introduced to make sure that
businesses were not just merely sold back to old management ithout due
consideration of other options.

“IPs will continue to be subject to criticism for as long as they deal with
SIP 16 compliance on a tick box basis,” said Carl Faulds, the current president
of the IPA.

The forum called on insolvency regulators, including the Insolvency Service
which oversees all SIP 16 reporting, to look at the substance of the reports.
The forum also appealed to IPs to demonstrate if they were “actually truly
justifying” their actions to creditors and not just providing an “excuse”.

“If IPs can’t or don’t justify their conduct, that is a failure to comply
with SIP16…… and disciplinary action must be taken by the regulators. Only
then will creditors have confidence in the process,” said Faulds.

Faulds said at the end of the forum: “We have to take away these discussion
points and distil them into action. We have to get the profession to speak with
one voice, although not necessarily through one regulator.

“Overall most IPs are carrying out a vital task and are doing it well, to the
benefit of creditors – but in some cases IPs attitudes to unsecured creditors
needs to change and IPs need to put more effort into communicating what they are
doing and why, and the regulators need to come down hard on those whose
behaviour is not up to best practice.”

The forum was chaired by Mike Norris, former head of policy at the Insolvency
Service, and now head of creditor body Max Recovery. He deals primarily in
personal insolvency and has no vested interest in pre-pack administrations.

Further reading:

Administrators
could pay back Lehman creditors by 2011

New
president at Insolvency Practitioners Association

Changes
to pre-packs could cost creditors