Partner Article

Government pre-packs review must take balanced view

The use of pre-pack administrations in the rescue of ailing businesses has been high on the business news agenda in recent months, and not always for the right reasons.

A pre-pack administration is where the sale of the business is marketed prior to the company entering administration and subsequently sold on appointment of administrators, with the Blacks Leisure Group being bought by JD Sports under such an arrangement at the beginning of 2012.

Administrators must specify why a pre-pack has been chosen as the best course of action for creditors of a given company as part of the process through what is known as a SIP 16 report, but despite this, creditors have regularly complained that the process has not been transparent enough and that they may have lost out as a result.

The Government has recently announced a review into the use of pre-packs, to ensure they are fair to all parties involved.

As someone who is regularly involved with helping north east businesses assess, address and recover from financial problems, I believe that pre-packs are a key tool for saving both struggling firms and the jobs that they support, and that the Government needs to give equal weight to the benefits they provide alongside the concerns that have been expressed about their use.

Pre-packs fare considerably better than alternatives in terms of the retention of jobs and returns to secured creditors, a fact which is crucial in the UK’s current sluggish recovery from recession.

If the economy is to deliver sustainable growth, it will need to give viable businesses a second chance, and we must make sure that any changes to the pre-pack process do not risk crippling this useful and effective process.

R3 has been calling for key changes to the pre-pack process for some time, and we believe the Government can do more to boost transparency and confidence in the process through this review, whilst protecting this extremely useful rescue tool.

We believe that The Insolvency Service should provide Insolvency Practitioners with detailed criteria of what they expect to be included in the SIP 16 report, and provide feedback where the report has been judged non-compliant, as recommended in the recent Business, Innovation and Skills Select Committee report.

The BISSC report also recommend that the criteria by which SIP 16 reports are judged should be published alongside the guidance.

My experience in the north east is that pre-packs are used responsibly, transparently and effectively by regional practitioners, and I think this provides a best practice example that everyone would accept as the ideal way forward.

The concerns that have come from within the creditor community about the pre-pack process are understandable, particularly over connected party sales, and we hope the Government review will help to increase confidence in the regime and highlight the vital role pre-packs play in saving businesses and jobs.

This was posted in Bdaily's Members' News section by Steve Ross .