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This month the Government has published its review of pre-packs following continued disquiet about their merits, particularly among unsecured creditor groups.  Theresa Graham’s review, which was commissioned by Vince Cable, has provided a useful list of recommendations to be implemented, initially on a voluntary basis, in an attempt to ‘clean up’ pre-packs.  The aim of the recommendations, which the Government has welcomed, is to provide greater clarity for failing businesses and to increase transparency for creditors.  It would be fair to say that ‘good pre-packs’ are here to stay!

The key features of the Government’s recommendations are:

A.  The establishment of a ‘Pre-Pack Pool’

  • This will consist of ‘experienced business people’. The Government has asked UK business and trade representative organisations to nominate suitable senior individuals
  • A connected party proposing to enter into a pre-pack transaction should voluntarily approach the Pre-Pack Pool to review the proposed pre-pack transaction and issue a statement on their views (which could be negative)
  • A single Pre-Pack Pool Member should spend no more than half a day in reviewing the papers in order to issue a statement to the connected party who will pay the Pre-Pack Pool Member’s fee.

B. Undertaking a viability review

  • A connected party proposing to enter into a pre-pack transaction should voluntarily carry out a viability review and provide a viability statement stating how NewCo will survive for at least the first 12 months from the date of the viability statement
  • This viability statement should state what NewCo will do differently to OldCo to avoid further failure
  • The viability statement is to be attached to a revised Statement of Insolvency Practice 16 (SIP16) statement and sent to all creditors within seven days of the sale
  • The viability review could be taken into account in disqualification proceedings against the connected party director on a subsequent insolvency of NewCo.

C.  Marketing pre-pack businesses

  • All marketing of pre-pack businesses should comply with the six principles of good marketing.  Any deviation from them should be brought to the attention of creditors in the SIP16 statement.  These six principles are:

I.      The pre-pack business should be marketed as widely as possible;

II.      The media strategy adopted should be justified to creditors;

III.      The proposed Insolvency Practitioner (IP) should market the business                                   irrespective of whether the company has also marketed its business                                   before the IP’s involvement;

IV.      The business should be marketed for such a period of time until the IP is                              satisfied that the best deal has been sought;

V.      Online communication is to be used as a default to any other form of                                    communication when marketing the business; and

VI.      The IP must satisfy all creditors where there is a high level of interest in                               the business by fully explaining the marketing strategy used to achieve the                           best outcome to creditors.

D.  Re-drafted SIP16

  • The Joint Insolvency Committee is requested to consider at its earliest opportunity and adopt a re-drafted SIP16, acting as a guide for delivering these recommendations
  • The revised SIP16 should confirm that the valuer instructed to carry out a valuation of the business holds adequate professional indemnity insurance.  Where the valuer does not hold adequate insurance, reasons must be stated why such a valuer has been used
  • The Government’s recommendation is for SIP16 statements to now be monitored by the Recognised Professional Bodies rather than by The Insolvency Service.

Details of these proposed changes are available at: www.gov.uk/government/news

This post was edited by Kulsam Mulla. For more information, email blogs@gateleyuk.com.


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.