Edward Davey, the minister for consumer affairs who has responsibility for the insolvency regime, unveiled several proposals this morning to increase the transparency over how pre-packs are managed.
He revealed plans which will place tougher new requirements on insolvency practitioners, particularly in the area of phoenix companies.
One proposal is that administrators will be required to give notice to creditors where they propose to sell a significant proportion of a company’s assets, or its business, to a connected party where the assets have not been openly marketed.
Davey said this will enable creditors to express concerns which the administrator would need to consider, or where the circumstances justify it, apply to the court to block the sale.
Administrators already need to provide a detailed explanation of why a pre-pack sale was undertaken to creditors in compliance with professional standard Statement of Insolvency Practice 16 (SIP 16).
These will in future need to be included in their administration proposals which are lodged at Companies House, making the information available to business as a whole, including credit reference agencies.
Administrators will also need to confirm that the sale price represents best value for the creditors.
Davey said: “The merits of pre-pack sales have continued to be the subject of much debate. I recognise that such sales offer a flexible and speedy means of rescue and can be the best way of maximising returns for creditors.
“We do not wish to outlaw them but they must be done fairly and reasonably. Particular concerns have been raised about sales of assets back to the current management, or other connected party, something that is often referred to as “phoenixism.”
Davey claimed that where such sales are at undervalue, creditors get less than they should.
He added: “Competitors who pay their debts in full also suffer. I want to make sure that creditors have a fair chance to have their voice heard. I also want to enable others to scrutinise such transactions after the event to ensure that deals being struck are fair in the circumstances.”
The Insolvency Service has also published today a report on the operation of SIP 16 during 2010. This follows the publication of previous reports during 2009.
The report examines the extent of compliance with SIP 16 by insolvency practitioners during 2010. Overall compliance during 2010 increased to 75 per cent, from 62 per cent in 2009.
The report on SIP 16 can be seen here: http://www.insolvency.gov.uk/insolvencyprofessionandlegislation/con_doc_register/registerindex.htm
Two other reports from the Insolvency Service were also published today. One is the 2010 Annual Review of Insolvency Practitioner Regulation. This can be viewed at: http://www.insolvency.gov.uk/insolvencyprofessionandlegislation/con_doc_register/registerindex.htm
The third report was a summary of responses to the consultation on pre-packs. This can be viewed at: http://www.insolvency.gov.uk/insolvencyprofessionandlegislation/con_doc_register/registerindex.htm