1 July 2011

BPIF comments on proposals for changes to rules on pre-packs

The Insolvency Service (IS) has announced proposed changes relating to the rules covering pre-packs and administration sales. These take the form of a draft statutory instrument for amending the Insolvency Rules 1986, which can be downloaded here. The BPIF were represented at a meeting held on 21 June of stakeholders who responded to the consultation on this subject conducted by the Government last year, and we have since written to the IS to comment on the proposed changes . A copy of our response can be downloaded here.

The IS has advised that this is a working draft and that the final version may be subject to change – particularly following consideration at the meeting yesterday and approval by the Insolvency Rules Committee. It was made clear at the meeting however that there is no prospect of further policy changes being made, such as some of the other points we pressed in our consultation response last year like debarring insolvency practitioners who have advised on a business restructuring from then handing the subsequent administration and sale. However IPs will have to declare any previous involvement with the company or with any parties connected to the sale. In response to concerns expressed by stakeholders, the IS are proposing that the additional controls on pre-packs should extend to liquidation.  This is a, intended to stop any migration of pre-packs from administration to avoid the new controls.

The measures can be summarised as:

1. Where a pre-arranged sale has been, or is in the process of being negotiated at the time of appointment, to record in the office-holder’s ‘consent to act’ document that the prospective sale price represents, in their view,  the best value for creditors.

2. To require administrators and liquidator’s to give three days’ notice to all known creditors of the terms of any proposed sale, where the office-holder intends to sell a significant proportion of the assets of a company or assets which are necessary to the continuance of the business (or a significant part of the business) of the company to a connected party where there has been no open marketing of the assets. 

3. Where a significant proportion of the assets of a company, or assets which are necessary to the continuance of the business (or a significant part of the business) of the company have been sold by the office-holder to a party (whether connected or not) before the administrator’s proposals or the liquidator’s first progress report have been issued, to require a detailed explanation and justification for the sale (analogous to that currently required by SIP 16) in the administrator’s proposals, to creditors or first progress report. 

We have told the IS that we support the specific measures set out in the draft Statutory Instrument which we consider are the minimum necessary to ensure the restoration of public confidence in pre-packs and we have urged that the proposed measures should not be watered down in order to accommodate concerns that may be put forward by those with vested interests in retaining the status quo as a consequence of the fee income they currently earn from the sale of failed businesses.