Last month the Pension Protection Fund (PPF) issued guidance relating to pre-packaged administrations (pre-packs) where the same insolvency practitioner (IP) continues in the subsequent liquidation or company voluntary arrangement (CVA).
The publication of the guidance arises as a result of the PPF’s concerns that a pre-pack can be exploited to dodge pension liabilities, with the new ‘phoenix’ company emerging post-sale and leaving these liabilities behind. The PPF is also concerned that the actions of the company’s directors, and those of the administrator, are often not adequately scrutinised in a pre-pack situation.
What does this mean for IPs?
It is important for IPs to bear in mind the effects of the PPF’s guidance, to prevent the IP from being replaced after a pre-pack where the guidance has not been taken into account.
Amongst other things, the PPF outlines in the guidance its intention to examine whether consultation with the pension scheme trustees and the PPF has occurred prior to the administrator’s appointment. If consultation has not taken place or concerns have been disregarded, the PPF will take action so that a new IP will be appointed to act as liquidator or CVA supervisor and consider whether there is a need to make a compulsory winding up order so that the liquidator can scrutinise events.
Considerations when dealing with a pre-pack admin
To reduce the risk of replacement after a pre-pack sale, IPs should:
- ensure that consultation takes place at an early stage between the pension trustees (who are classed as unsecured creditors) and PPF prior to the administrator’s appointment;
- properly consider the views of the PPF and the pension trustees, including in respect of costs;
- consider the company’s marketing strategy prior to sale as a pre-pack;
- be mindful of the on-going involvement of the original shareholders in the management of the business post-administration; and
- consider carefully the rationale for the pre-pack.
IPs should take care when acting on pre-pack sales for companies who have a pension scheme deficit, as the new guidance clearly displays the PPF’s intention to closely examine the conduct of pre-packs going forwards.