MORE THAN 20 insolvency practitioners (IPs) were reported to their professional body because of non-compliance in pre-packs, a government shows.
Following a review of compliance reports in pre-packs (SIP 16) the Insolvency Service reported 21 insolvency practitioners, which related to 29 companies, to their regulators.
There are seven regulators known as recognised professional bodies (RPBs) in the UK: ICAEW, IPA, ACCA, the Insolvency Service, ICAS, the Law Society and the Law Society of Scotland.
Insolvency practitioners are required to file all SIP 16 reports to the governemnt body outlining their reasons for using a pre-pack and compliance with regulation.
A pre-pack usually involves the sale and marketing of a business arranged prior to it entering a formal insolvency process, then sold immediately after entering administration.
“The main areas of concern leading to SIP 16 information being marked not fully compliant continue to be the issues associated with timeliness, background information, valuations, marketing, asset details and apportionment of sale consideration,” the report said.
“These aspects were all specifically addressed in the further guidance issued to insolvency practitioners in October 2009. On the other hand we have seen some improvements in the explanation given for the pre-pack sale, the timing of disclosures made, and reasons for not marketing the business for sale.”
The Insolvency Service said it is now seeing a higher number than ever before of cases where “insufficient information is provided concerning the assets and the apportionment of sale consideration” in the reports. Without this information creditors are unable to fully understand whether their realisation was better in the pre-pack or not.
In the last year the Service received 723 SIP16 reports and reviewed 58% of them, about 420 cases. However, the investment from the government body to look into SIP 16s is slipping; in 2010 it received 769 reports and reviewed 70% of them – about 538 cases.
The Insolvency Service estimates that 25% of the 2,808 companies that entered administration in 2011 were a pre-pack sale. This compares to about 2,835 administrations in 2010 with 27% accounting for pre-packs.
Other stats to come out of the report include; nearly 80% of pre-pack sales were to connected parties compared to 72% last year; and just more than half of IPs undertook some marketing of the business with just 44% doing the same in 2011.
The Service has noticed some SIP 16s are failing to fully comply with requirements to provide information on pre-appointment costs and expenses, and to obtain the approval for them. It hopes to publish further guidance on how to report these type of requirements in SIP 16 reports later this year. This will be the second time the Insolvency Service will publish guidance on these reports since its inception in January 2009.
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