Directors should pay for pre-pack abuse

It’s the directors stupid. That’s the theme of a report from R3, the
association for insolvency practitioners (IPs), after polling its members on SIP
16, a new piece of regulation that asks them to be transparent after they have
managed a pre-pack administration. R3’s conclusion is that government should do
more to target dodgy directors if it is to stop the abuse of administration
procedures, rather than place a greater burden on insolvency experts sent in to
mount rescue bids. R3 is quite clear that more company directors should face
disqualification for abuses of the system.

Pushing the attention on to directors is not entirely wrong, though it is an
agenda that works in the best interests of IPs. But it is directors who are
responsible for running companies and paying creditors. It is right they should
be held accountable. Whether more should be disqualified is another issue.
Certainly directors should feel they could face sanction for illegitimate use of
procedures – but it comes down to enforcement and policing. In times like these,
when so many companies are going bust, there is bound to be an increase in abuse
– which should be met with a corresponding lift in the enforcement activities.
That’s where the difference will be made in this sensitive issue.

But one of the more interesting comments about SIP 16 was that it would not
convince the public that pre-packs are not open to abuse. That’s for two
reasons. Firstly, because they are open to abuse. Most systems are. The question
is whether anything is being done to reduce the abuse. Secondly, a regulation
that insists on retrospective transparency will never convince a public that is
used to real time openness. Pre-packs are useful and, if we want to continue
using them, we may have to pay that price.