Pre-Packaged Controversy

Happy New Year to everyone from the Property Dispute Resolution team at Cripps! 
 
The post-Christmas and New Year sales marks a vital time of year for many retailers, with the pressure on to generate enough income to see them through what can be a quiet few months to come.  As a consequence, the New Year has of recent times often seen a flurry of tenant insolvencies, sometimes involving what is known as a pre-pack administration.  This is practice which has generated some controversy, and involves a company being placed into administration when a buyer for the business has already been lined up.  Whilst it can be an effective way of rescuing a business and preserving jobs, it is often perceived as being a slightly cosy arrangement, as the new company rises from the ashes of the failed business, less a number of inhibiting liabilities and sometimes at the expense of creditors such as landlords.

The New Year therefore provides an interesting opportunity to test the new Statement of Insolvency Practice 16 (“SIP 16”).  SIP 16 (introduced in November 2015) sets out various new requirements which will need to be followed by administrators.  These include, for example, a revised marketing guide, setting out the marketing activities which should be carried out for the benefit of creditors.  Creditors are also entitled to certain information on pre-packs, including why a pre-pack was used and what the relationships are between the various parties involved.  In addition, sales to connected parties now have to be examined by a pool of independent reviewers who must give an opinion on the transaction as a whole.

The key question is whether these new measures will strike a balance between the need for transparency and to provide creditors with more confidence in the process, whilst preserving it as a speedy and cost effective way to rescue a business - time will tell!

Richard Housley (Associate)