BERR's consultation on pre-packs – a wasted opportunity

At the end of March, the Insolvency Service issued its report following its consultancy over the transparency of pre-packs in administrations.  The headlines in the non-insolvency trade press suggests there will be major changes ahead, but I very much doubt it – those outside of the insolvency profession will be sorely disappointed, maybe not just yet, but give it 12 months or so and they will be.  Berr have effectively soft soaped those in industry, playing to their prejudices while recognising there’s no major evidence to support industry’s views that the pre-pack proedure is being widely misused.  Ultimately the report will do nothing to ease the concerns of those in industry over the alleged abuse of pre-packs or to improve the standing of those involved in the insolvency profession.  The divide between industry and the insolvency profession will remain as wide as it is now.

Here’s an article I wrote for Road Transport Today in response to the report.

‘Much of the commentary on pre-packs seems to be based on the perception that it’s the insolvency practitioners’ responsibility to ensure there is a level playing field across a given sector.  But they do not exist for this reason.  And I’m not even sure that this is the role of the government through BERR.

Like any professional adviser, insolvency practitioners are charged with doing the right thing, in the right way and at the right time so as to achieve the best result under the circumstances, where ‘right’ means ‘within the law’.  Like any other adviser they cannot allow someone else’s wider moral viewpoint to come into play.  They have to deal with the facts in front of them at that particular time.  Where the sale is to the same management, there is obviously a huge self interest element for them. It’s little different from business owners following their accountant’s advice on how to mitigate tax, except the insolvency practitioner has to explain his decisions in a detailed report to the creditors because his duties lie with them.

This announcement will do nothing to tighten pre-packs, because (i) they are accepted by the government, if not by competitors, as a proper tool for dealing with insolvency situations; and (ii) there is no evidence that pre-packs are being abused as the law stands (strange that the Insolvency Service report to effect, made the same day, got buried!).

This announcement therefore merely temporarily pours oil over the water of onlookers’ views of insolvency practitioners and pre-packs.  In reality a three day waiting period will have little or no practical impact.  I cannot see many creditors injuncting the Administrator to prevent a sale.  And how many fresh interested parties do we expect to be able to come properly to the table, make a better offer, accept similar terms, and provide evidence of unconditional funding in such a short space of time?

With the government estimating that one in four administrations is a pre-pack, and several factors in the economy often making them the only solution at the moment, the battle lines will remain drawn firmly between those for and against the process.  This debate will rumble on, and on, and on……’

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