Insolvency’s mixed fortune on pre-packs

PRE-PACKS HAVE A serious image problem. And by association, so do the insolvency practitioners that propose them.

An unfair, opaque process that cuts creditors out of the loop and often places the company directors back in charge, free of a big tranche of the old company’s debt, is the complaint.

The combination of a lack of creditor influence, plus the same old directors in place on many occasions – the term phoenix company is the term often used with all its negative connotations.

But for the government to propose that three days’ grace must be given to creditors where an insolvent business is sold back to connected parties makes little sense, and renders the process defunct.

For big businesses, staff and associated business parties could well up and leave. And most pre-packs sold back to directors occur in smaller companies, where a three-day hiatus will just rack up administration costs.

Different forms of pre-packs are being trialled, but without a definitive replacement.
Opening up the administrators’ pre-pack report to the public, known as SIP16s, is at least progress. It feels like playing the same old record, but insolvency is a much better process when as transparent as possible.

Unless the insolvency profession can really hammer home the importance and value of the pre-pack process, then its demise will lead to more liquidations, and creditors will lose out to an even greater extent.

And who will be blamed? Insolvency practitioners of course.