Changes to pre-packs could cost creditors

Costs in pre-packs could increase under government proposals, warn experts in
the profession.

The warning follows the recent announcement by business minister Ian Lucas
that a consultation on pre-pack administrations is currently underway.

The consultation will look at changing the way pre-packs are conducted and
further scrutinise the transparency report Statement of Insolvency Practice 16
(SIP 16).

Headline proposals include: mandating SIP 16 which is currently voluntary;

allowing the official receiver to investigate the directors and administrators

actions; and splitting the IP’s role by having one to advise and a separate one

to conduct the pre-pack.

Mike Jervis, partner at
PwC, said:
“While we welcome further consultation on these issues, it is important that
regulatory bodies investigate any insolvency practitioners that are not
compliant with SIP16. It is also important any changes in the approach do not
make insolvency more costly for creditors.”

He noted that the volume of pre-packs had decreased in recent months, because
he believes that insolvency practitioners are apprehensive about the adverse
reaction to the deals from the public and stakeholders. There was more
acceptance of other restructuring techniques, such as company voluntary
arrangements, by creditors.

“Although again this could provide a useful check, it will in reality
increase the costs of the company and potential cost of the administration to
the detriment of unsecured creditors,” said Tim Carter head of insolvency at law
firm Stevens
& Bolton

He explains the move to separate the role of the IP could encourage “behind
the scene deals” which could be detrimental to the industry.

Carter continues he has concerns over whether the Official Receiver has the
“resources” to properly investigate directors and administrator actions.

However Carter is much more optimistic on mandating SIP 16, adding: “It has
been mooted in the insolvency industry that IP’s licences be removed for
non-compliance with SIP 16. This would therefore appear to give teeth to what
has only to date been a guide to best practice.”

Further reading:

law could be changed to boost pre-packs

announces Latitude pre-pack

Related reading