The government has announced plans to reform pre-pack insolvency deals to improve the transparency of the processes involved and increase the financial returns, but has stopped short of introducing new legislation in this area, relying on voluntary co-operation instead.
Business Minister Jenny Willott said the government will be adopting the recommendations made by Teresa Graham in her report on pre-packs, which is published today. The Graham review, launched last year, was charged with looking at ways to improve the results for creditors without imposing undue costs, and with examining the issues around sales to ‘connected parties’.
‘Teresa Graham has come up with a set of recommendations which will ensure people get back as much money as possible and make pre-pack deals more transparent. We will be working with business and industry to implement these recommendations in full and we believe it will help restore trust and confidence in pre-pack deals. We will monitor progress closely and will take the power to legislate if necessary,’ Willott said.
Graham’s recommendations include creating a ‘pre-pack pool’ where details of a proposed sale to a connected party can be shown to an independent person prior to the sale taking place. The aim is to increase transparency and give greater confidence to creditors that the deal has undergone independent scrutiny.
Graham also wants connected parties to complete a ‘viability review’ for the new company to improve its chances of success, and says valuations should be carried out by a valuer who holds professional indemnity insurance, to increase confidence that the sale is for a fair price. She says administrators should ensure proper marketing is undertaken in order to maximise sale proceeds.
The recommendations have been welcomed by Giles Frampton, president of insolvency trade body R3, who said they were ‘innovative, measured, and worth exploring’ and would ‘help dispel some of the myths that exist around the pre-pack procedure.’
‘It is also encouraging to see the report’s recommendations focus on more than just the insolvency practitioner’s role in a pre-pack. Instead – and rightly – the report turns the spotlight on directors involved in a connected party pre-pack,’ Frampton said.
ICAEW also welcomed the proposals, saying they would help maintain the pre-pack as ‘a legitimate tool of the UK’s rescue culture’.
Vernon Soare, ICAEW executive director, professional standards, said: ‘We specifically support the recommendations that directors should take more responsibility for the on-going viability of Newco and that there should be independent scrutiny of a deal before the event. We will be very happy to share our expertise to establish the proposed pre-pack panel.’
