Statement of Insolvency Practice 16 (SIP 16)

Pre packaged sales in Administrations (SIP 16) has been in force since January 1 2009. It was introduced in order to give legislation for an Insolvency Practitioner to adhere to when allowing pre-packaged sales to take place in Administrations. It was previously felt that certain Insolvency Practitioners had abused the pre pack process to the detriment of Creditors in order to ensure that they got the appointment.

The term 'pre-packaged sale' or 'pre pack' refers to an arrangement under which the sale of all or part of a company's business or assets is negotiated with a purchaser prior to the appointment of an administrator, and the administrator effects the sale immediately on, or shortly after, his appointment.

The legislation is not designed to prevent an Insolvency Practitioner from conducting a pre packaged sale as long he uses it in appropriate circumstances and it can be justified as being in the best interests as Creditors as a whole.

Strangely, SIP 16 does not apply in Liquidations. Therefore as long as fair value is paid for the assets this can provide a slight loophole to be exploited in the right circumstances.

Furthermore, on occasion, we may recommend a pre appointment sale where the assets are sold prior to the appointment of an Insolvency Practitioner. Again, as long it is done in the correct manner, and fair value is paid it is difficult to overturn such a transaction.

Where the Directors are worried that a rival company may try and buy their assets, our advice in this regard can be particularly useful. Finance7 will be able to give you specialist advice on this topical area of insolvency legislation.