More than 90% of jobs caught up in pre-packaged administrations in 2009, when
the recession was at its peak, were saved. Why then has this particular
insolvency process been shrouded in such controversy?
R3, the insolvency practitioners’ trade body, found that 15,980 jobs were
saved in pre-pack administrations for the whole of 2009 out of 17,762 which were
at risk. In a recent survey of its members R3 found the main reason for IPs’
using pre-packs was that it provided the best avenue for struggling businesses
that want to recover the most money for creditors.
However, public criticism of this form of administration, which markets and
arranges the sale of a company before a formal process begins, has meant the
industry could be overhauled (see page 1).
The R3 survey looked at IPs’ attitudes and experience of pre-packs over the
last year and found the profession’s regulator, the Insolvency Service, was
partly to blame for public criticism of this controversial form of
The Insolvency Service introduced new regulation in the form of SIP 16 –
guidance designed to increase transparency around pre packs – and concluded many
IPs were failing to comply with that guidance, but was vague about how
non-compliance was defined. This state of affairs, according to R3, led to
pre-packs being viewed as less than welcome by the public.
A review by the Insolvency Service, which released clarifying guidance on SIP
16 just five months ago, found 38% of SIP 16 reports did not meet guidelines. R3
insists the Insolvency Service is unclear on what constitutes non-compliance and
argues many more IPs were following the rules than the statistics suggest.
R3 claims, in its own research for the whole of 2009, just 1.5% of IPs who
carried out a pre-pack were referred to their regulatory professional body,
suggesting there was little abuse of the system.
One in five IPs contacted by the regulator said mistakes were made about the
contents of SIP16 reports. They said the Insolvency Service believed there was
information missing from the reports when it was present all along.
Practitioners who took part in the R3 study expressed concern that Insolvency
Service officials had a “tick box” mentality and lacked a “nuanced”
understanding of the issues involved in pre-packs.
The trade body is calling on the profession’s regulator to provide
information on the level of commercial or insolvency experience of the officials
who examine SIP 16s.
R3 also wants the regulator to provide clearer terminology when describing
its SIP 16 conclusions. Crucially, it is calling on the Insolvency Service to
draw a distinction between an IP who has submitted their SIP 16 report a week
late, and one which has failed to properly explore alternative administration
options when assembling its non-compliant figures. Without the differentiation,
R3 believes the conclusions will remain simplistic and misleading.
The trade body labels the current terminology as “unhelpful” and “ambiguous”
and says it is deterring the profession from improving the perceived image of
“We appreciate that there is no room for complacency. We call on the
Insolvency Service to assist IPs by providing greater clarity on what they
expect from a SIP 16 report and to work with IPs to report honestly on
pre-packs,” said Peter Sargent, president of R3.
In an analysis which looked at SIP 16 reports for the second half of the
year, the Insolvency Service noted one of the biggest problems for pre-packs was
the lack of a statutory definition of what constitutes a pre-pack sale.
Pre-packs made up 29% of all administrations in 2000 according to Insolvency
Service statistics. Approximately 30 IPs were referred to their licensing
authority in the last year in relation to SIP 16 non-compliance – 7% of the
The Insolvency Service was unavailable for comment at the time of going to
IN OUR VIEW
The Insolvency Service needs to work closer with the profession to fully
understand what is needed to help free IPs and businesses from the stigma
associated with pre-packs – which is statistically better at saving jobs and
keeping businesses afloat.
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