Regulators must act fast to avoid ‘stigmatising’ CVAs

Insolvency licensing bodies have a “wonderful” opportunity to show their
mettle after a high profile complaint by a judge against two practitioners.

In an appeal against a CVA for Sixty UK, which owns the Miss Sixty clothes
brand and Energie clothes shops, justice Henderson heavily criticised
administrators Nick O’Reilly and Peter Hollis for proposing a deal that he found
was unfair to some creditors.

He said the proposal “should never have seen the light of day” and that there
was a “prima facie case of misconduct”. He also said he was passing on the
details of
his judgement to their licensors, the IPA and ACCA respectively.

Leading industry figures this week said the regulators should move promptly
to clear up the allegations one way or the other.

Chris Laughton, deputy president of industry body Insol Europe, said the
licensors need to act “quickly and fairly” and not sit back and wait for the
judgement to be sent to them, but demonstrate to the public that regulation in
the profession is working. “It’s a wonderful opportunity for regulators to show
what they are made of,” he added.

Mike Jervis, partner at PwC, said the judgement in this case creates a
“cloud” over the use of CVAs and needs to be “dispelled by the insolvency
profession” quickly. He said a quick response from the licensors could stop CVAs
becoming “stigmatised” and set the record straight as to why CVAs are often a
viable insolvency process for struggling businesses.

Philip Long, partner at PKF, an industry commentator, agrees. He said the
case is now of “general interest to the profession” to show that regulators can
react “speedily”.
In cases where there is more than one licensor, one of them will conduct an
overall investigation, sending its findings to other licensors involved once the
overall complaint has been handled.

Accountancy Age understands that, in this com­plaint, ACCA will take the lead
regulatory body role. Neither institute would comment on current or future

The bodies believe it is not an “effective use of resources” for both
licensors to conduct separate investigations.

The decision of which body will take the lead investigator role is based on a
number of factors, including which licensor receives the complaint first, or
which regulator is larger.

Peter Hollis and Nick O’Reilly were appointed adm­inistrators on 29 September
2008 and proposed a CVA in March 2009 which was approved in April.

The landlords appealed the CVA, claiming it was in breach of a third party
guarantee contract for its premises.

A contract was signed with the parent company, Sixty SpA, in 2006, claiming
if Sixty UK was unable to pay its landlords Sixty SpA would cover any

The CVA proposal by the administrators included a payment to the landlords of
£300,000 to cover those liabilities.

The landlords felt this figure was too low because it represented just one
third of the actual amount they believed they were owed, as outstanding
contracts still had seven years to run. The two landlords also felt they were
unfairly treated in comparison with other unsecured creditors who were due to be
paid in full.


Some of the proposals from a recent OFT investigation into corporate
insolvencies included changes to regulation of IPs and a better way of handling
complaints – through the introduction of a complaints committee. The regulators
now have a high profile case in which to prove to everyone that both current
regulation and complaint procedures are robust.

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