Insolvency law could be changed to boost pre-packs

The UK’s business minister has revealed that a consultation on “boosting
confidence” in pre-packs will be launched, including proposals to change to the
way insolvency practitioners (IP) arrange them.

Ian Lucas made the announcement following research by the Insolvency Service
that found more than a third of IPs were not “adequately” complying with filling
in transparency report SIP16.

Lucas said the government would consult on tough new measures to boost
confidence in pre-packaged administrations. Possible changes include looking at
whether SIP 16 is providing creditors with enough justification and explanation
as to why a pre-pack was chosen as the route through which to deal with an
insolvent business.

“Pre-packs are a good option for some companies when they get into difficulty
as they can preserve value and jobs,” said Lucas.

“But I’m very concerned that the appropriate information to justify the
pre-pack is not always being provided. It is crucial that business and the
public have confidence in the insolvency regime and that pre-packs are being
used responsibly and appropriately. We will be consulting as soon as possible on
a range of new measures.”

Some of the options which may now be considered include: introducing a
statutory penalty for IPs that fail to file SIP16 reports; following a pre-pack
administration, provision for automatic scrutiny of the directors’ and
administrators’ actions by the Official Receiver; making it impossible for the
professional advising on a pre-pack to become the administrator; and requiring
court or creditor sanction for pre-pack deals involving the sale of the business
to someone connected to the company.

Lucas is calling for IPs to participate in the consultation which is being
undertaken by the Joint Insolvency Committee.

Further reading:

Opinion
splits over pre-pack transparency reform

IPs
praised on pre-packs, but must do better: Insolvency Service