How to complain about misuse of the pre-pack administration process
What is the ‘pre-pack administration process?
A ‘pre-pack’ (pre-packaged sale) 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 Insolvency Practitioner as administrator. The sale will be effected by the Insolvency Practitioner shortly after his/her appointment.
Why are ‘pre-packs’ used and what rules do administrators have to follow?
‘Pre-pack’ administrations tend to be used where commercial pressures require urgent action. New rules, (Statement of Insolvency Practice (SIP) number 16) which were introduced on 1 January 2009, require administrators to explain to creditors the background to their appointment and the reasons why they considered that a ‘pre-pack’ sale would be the best outcome for creditors. Administrators will not only have to reveal the name of the purchaser of the business and the price paid, they will also have to provide details of any connection that the purchaser had with the former directors or shareholders and the price paid.
Does SIP 16 mean that there will be more transparency?
Yes - The Insolvency Service has welcomed the greater transparency that the new rules relating to ‘pre-pack’ administrations provides. Creditors will now have better access to information about the new owners of a troubled business providing them with greater clarity about the administration process.
Are ‘pre-packs’ a good thing?
Pre-packs can be a good thing, as in some circumstances they will improve returns to creditors. In addition they can help to preserve the business of the failed company, thereby saving jobs.
How will The Insolvency Service deal with misconduct in ‘pre-pack’ administrations?
We will be working closely with the bodies that regulate administrators to ensure that SIP 16 is put into practice. We will also be looking to use our enforcement powers to clamp down on any directors who misuse the administration process to disadvantage creditors or seek to gain benefit for themselves. We want to hear from any creditors who consider they have been disadvantaged.
Directors of insolvent companies, which includes those going through administration, can be disqualified by the court for a period of between 2 to 15 years if their conduct in the period leading to the insolvency proceedings is considered to be unfit.
How do I complain about a ‘pre-pack’ administration?
If you wish to complain about a ‘pre-pack’ administration (or any other corporate insolvency process) you can:
The Insolvency Service
Insolvency Practitioners Policy Section
4 Abbey Orchard Street