Pre-Pack Administrations and the new Pre-Pack Pool
The new ‘Pre-Pack Pool’ went live on 2 November 2015, and the new Statement of Insolvency Practice 16 became effective from 1 November 2015. This follows the recommendations in the Graham Report in relation to Pre-Packaged sales in Administrations.
Following significant criticism in the press of sales negotiated and agreed pre-administration and enacted shortly following Administration (particularly to connected parties) in 2013 Vince Cable commissioned Teresa Graham CBE to undertake an independent review of the process (the Graham Report), as part of the Government’s wider ‘Transparency and Trust’ agenda.
Following the results of the review ‘Pre-Pack Pool Limited’ was established in March 2015, with Teresa Graham, Duncan Grubb and James (Stuart) Hopewell as the initial Directors and shareholders. According to Companies House, Teresa Graham resigned as a Director on 26 October 2015.
From 2 November 2015, potential purchasers may make an application to the pool (for a fee, currently £800+VAT) for an opinion from one of its panel. Use of the service is voluntary, and the fee is payable by the applicant.
The aim of the pool is to reassure creditors that an independent person has considered the reasonableness of the proposed transaction and assist with transparency.
The pool member will offer one of the three following opinions:
- Nothing found that the grounds for the proposed pre-packaged sale are unreasonable; or
- Evidence provided has been limited in some areas, but otherwise nothing has been found to suggest that the grounds for the proposed pre-packaged sale are unreasonable; or
- There is a lack of evidence to support a statement that the grounds for the proposed pre-packaged sale are reasonable.
Whilst an administrator may still accept an offer from a connected party and proceed with the sale where the pool has not been satisfied with the evidence provided, the administrator will have to explain to the creditors why they felt the sale was appropriate.
An administrator is obliged to provide a clear explanation and justification for the sale in accordance with Statement of Insolvency Practice 16 (SIP 16). Conversely, according to their website, the pool will not give reasons for their decision, the decision cannot be appealed and neither the pool member nor the pool directors will enter into correspondence on the opinion given.
It is disappointing that the ‘highest recommendation’ that can be given by the pool is not, as hoped, that the pre-packaged sale appears reasonable and is likely to result in the best return to creditors, but instead that the grounds for the sale are not unreasonable. That the grounds are ‘not unreasonable’ is not, in our opinion, particularly helpful or confidence inspiring.
As use of the pool is voluntary, at a cost and will at best provide a non-negative (as opposed to positive) opinion of the deal, it will be interesting to see how widely used the pool will be.
With this in mind, how useful (and reassuring) the existence of the pool will be to creditors, only time will tell.
[Written in November 2015]
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