The process for handling pre-pack administrations is still insufficiently transparent and requires higher levels of compliance, according to the Business, Innovation and Skills (BIS) Select Committee.
Adrian Bailey MP, chairman of the BIS Select Committee warned issues remain with pre-pack administrations in his findings after his inquiry into the Insolvency Service.
He explained: “Greater transparency, higher levels of compliance and a stricter regime of sanctions are needed.”
The inquiry also advised that the Insolvency Service should do more to monitor compliance with SIP 16 but noted that, to make this effective, non-compliance would require tougher penalties.
As a result, it has been recommended that The Insolvency Service amends its monitoring processes to include feedback to each insolvency practitioner and their regulatory body where SIP 16 reports have been judged to be non-compliant.
It has also been recommended that the criteria by which SIP 16 reports are judged should be published alongside the guidance.
Lee Manning, president of R3, said: “R3 strongly supports the suggestion of providing feedback to IPs where the SIP 16 report (explaining the pre-pack to creditors) has been judged non-compliant to prevent repeated mistakes.
“IPs should be informed of what precisely the IS expects to be included in the SIP 16 report. We believe these changes will produce better SIP 16 compliance and will go some way to improving confidence.
“R3 believes there are further measures which should be introduced in order to boost transparency and confidence in the pre-pack process, such as giving creditors the option to appoint an independent liquidator to examine a connected party sale.
“Pre-packs are a vital rescue tool which fare considerably better than alternatives in terms of the retention of jobs and returns to secured creditors; this is crucial during the current sluggish recovery.”