The Statement of Insolvency Principles (SIPs) were initially issued as best practice guidance for Insolvency Practitioners (IPs) but they now form part of IP regulation. SIP 16 regulates IP’s duties in relation to pre-packaged sales in administration, otherwise known as ‘pre-packs’. In a nutshell, pre-packs are pre-arranged sales by companies in administration of their business or assets (or both), that complete either immediately upon the appointment of the administrators or shortly after.

Despite there being only around 700 pre-packs a year, they have experienced a vast amount of publicity and controversy, perhaps due to the perceived lack of transparency and accountability around such sales. This has resulted in SIP16 being continually reviewed, reported on and revised since its creation. The most recent of which is a revised version that came into effect at the beginning of the month, applying to insolvency appointments commencing on or after 1 November 2015. This follows the Government’s review of pre-packs after the independent report by Teresa Graham CBE, published in June 2014.

The focus of the new SIP is to enhance transparency to creditors both from the IPs and from any connected party purchaser.

The provisions of the new SIP 16 require practitioners acting on a pre-pack to:

  • Produce a SIP 16 Statement to creditors keeping a detailed record of:
    • the reasons why a pre-pack has been chosen as the best course of action for creditors including a log of the steps that were taken;
    • the alternative courses of action that were considered and reasons for not pursuing them;
    • the consideration for the sale and the terms of payment, broken down under valuation categories;
    • any connection between the buyer and the directors, former directors, shareholders or secured creditors of the company; and
    • if there are any deviations from the specific essential steps, in which case they must provide an explanation.
  • Ensure that any valuation of the business is by an appropriate professional who has the benefit of professional indemnity insurance to provide the valuation.
  • Show that they have performed their functions for the benefit of the company’s creditors as a whole.
  • Adhere to the ‘marketing essentials’ to ensure the best value for the company is obtained. These essentials include formulating a justified and independent marketing strategy on a wide scale.

Additionally, the provisions of the new SIP also give a potential purchaser that is a company connected to the one in administration, the option of approaching a ‘pre-pack pool’ to request an opinion from its panel as to the reasonableness of the purchase, giving regard to the potential return to creditors. A connected person is defined as a party who is a director or shadow director or an associate of the company (section 249 Insolvency Act 1986). A company is associated with another company if, for example, the same person has control of both companies (section 435 Insolvency Act 1986).

A request to the pre-pack pool, made up of 19 experienced and senior business people, is voluntary and comes at a cost (currently of £800+VAT). An application is made via a secure, online portal from a dedicated website, and details about the proposed transaction are entered including details of the old company, new company and nature of the connection. Based on the information submitted, the independent pre-pack pool reviewer will issue one of three opinions within two business days:

  1. The pre-pack is not unreasonable;
  2. The case for a pre-pack is not unreasonable but there are minor limitations in the evidence provided; or
  3. Case for pre-pack has not been made out.

Whilst some commentators have expressed uncertainty around the fact that the pool will not provide an express validation of the transaction, the fact that the pool has not declared the case to be unreasonable must at least provide some comfort to the buyer, unless material facts have not been disclosed. As requests are optional instead of mandatory, it will be interesting to see how inundated the pool will be with such requests.

The general provision of extra information to creditors and the need for IPs to justify and explain their strategies should arguably fulfil the aims of making the process more transparent. However, it remains to be seen if it will eradicate the often held public perception that pre-packs are a detriment to creditors.

This post was edited by Rebecca Mills. For more information, email

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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.