Controversial pre-pack reforms begin

INSOLVENCY practitioners involved in pre-pack administrations are to have their work scrutinised under controversial new reforms launched today.

Introduced following a government-commissioned review into the use of the heavily-criticised administration process, a ‘pre-pack pool’ where deals will be scrutinised prior to a sale taking place when a connected party is involved, such as a director of the failed business.

Last year, Teresa Graham, the senior accountant who led the review into the use of pre-pack administrations – where the sale of the business is marketed prior to the company entering administration and subsequently sold on appointment of administrators – published a series of recommendations aimed at making the process more transparent, fair and give creditors a better deal.

The reforms, which also include new guidance on marketing proposed ‘pre-packed’ businesses to third parties to get a better deal for creditors, are backed by creditor groups, government, the insolvency profession, and regulators.

Duncan Grubb, director of Pre-Pack Pool Limited, the body responsible for the Pool, and former chair of the British Property Federation’s insolvency committee said: “The reforms strike a balance between transparency and the discretion needed for business and job rescue.”

The pool is voluntary and connected parties will be made aware of the pool by an insolvency practitioner. The pool is made up of 20 independent senior business experts [see box] who will deliver a response within 48 hours.

“While the pool is voluntary and its opinions are not binding, it will reassure creditors about the reasonableness of the pre-pack transaction and its justification in the circumstances,” said Grubb.

Connected parties will make an application to the pre-pack pool via a secure, online portal. Based on the information submitted, that the pool reviewer will issue one of three opinions: the pre-pack is not unreasonable; that the case for a pre-pack is not unreasonable but there are minor limitations in the evidence provided; or that the case for pre-pack is not made.

The Pre-pack Pool works on a user-pays principle. The process will cost £800 + VAT per application.

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