Pre Packs Consultation Launched
Tougher measures to regulate pre-pack administrations have moved a step closer, after the Department of Business, Innovation and Skills launched a consultation.
Business minister Ian Lucas launched the consultation to consider options such as strengthening laws surrounding the use of pre-packs, and preventing an insolvency practitioner (IP) from advising on a pre-pack and going on to become the administrator.
The consultation follows a report by the Insolvency Service issued on 19 March which said that IPs failed to comply with industry rules on transparency in a third of pre-pack administration cases. IPs may now face far stricter guidelines than statement of Insolvency Practice 16 (SIP16) which effectively regulates how pre-packs are arranged.
Representatives from the insolvency industry have criticised the decision to go ahead with the consultation, arguing that changing the rules would drive up the cost of administration.
Peter Sargent, president of insolvency trade body R3, said: “The perception that pre-pack rules need ‘strengthening’ derives largely from the Insolvency Service’s own misreporting on pre-packs, namely the claim that more than a third of SIP 16 disclosure statements were not fully compliant.
“In fact as few as seven per cent of SIP 16 reports were considered suitable for potential disciplinary action.”
Pre-packaged administrations are a popular choice as they are quick and often provide the best chance of saving jobs. It is feared that changes to the system will not only increase the cost of administration but will also make the process more time consuming.
Sargent added: “It is misleading to claim that IPs are not complying with the industry’s own rules, when in fact they are being judged purely by the Insolvency Service’s interpretation of those rules.
“We understand the concerns surrounding pre-packs, often stemming from the need for a rapid sale. We are concerned that the noise over SIP 16 reports drowns out the reasons why an IP considers doing a pre-pack in the first place. Namely pre-packs deliver higher returns to secured and unsecured creditors, preserve jobs and are a better alternative to liquidation.”
Posted at 12:48PM Apr 12, 2010 by Marc Stenton in Insolvency | Comments[0]
