Pre-pack changes not enough to prevent “insolvency abuses”

The package of proposed reforms, announced by Business Innovation and Skills minister Ed Davey, will require insolvency practitioners to notify creditors in advance of a phoenix pre-pack and allow them three days to object if they wish.

Pre-pack sales whether to connected parties or not are often done at great speed and presented to creditors as a fait accompli, leaving them open to abuse.

However, the BPF argued that three days would be insufficient and called on ministers to extend this notice period to one week, given the extent of the examination of the business that would have to occur during that period.

Davey also announced other measures that would make pre-packs more transparent, including a requirement for insolvency practitioners to serve a SIP16 notice – explaining why a pre-pack is the best option for creditors – at the time of the administration rather than following it.

Insolvency practitioners would also be required to post SIP16 information at Companies House, again increasing transparency of the decision making process.

James Anderson, assistant director at the British Property Federation, said: "Pre-packs have a place in the armoury of the insolvency practitioner as they are proven to rescue distressed businesses. What landlords absolutely do not want to see is the manipulation of a business rescue system for companies’ commercial gain.

"The system is most open to abuse in pre-pack sales to connected parties – sales that often occur with limited or no marketing of the business, at speed, and with the sale presented as a fait accompli to creditors.

"[Today’s] announcement takes steps to improve the system for creditors, which is welcomed. However, more time should be given to creditors for them to analyse pre-pack deals to connected parties. The three-day period is not sufficient in our view, and should be extended to one week.

"We are pleased to see the Government take steps to ensure that information on pre-pack sales is provided to creditors in a timely manner and welcome the proposal to require IPs to serve SIP16 information on creditors at the same time as issuing administration documents.

"Many IPs already do this, however, and in order to provide maximum security to creditors, the SIP16 should be placed on a statutory basis which will reach out to those operators that flout the rules."

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