The pre-pack pool, the panel that may be contacted by directors involved in the pre-pack purchase of the business of their insolvent company in the context of an administration, has been effective since 2 November 2015. If a director, or connected party, chooses to contact the pre-pack pool with details of the proposed transaction, the pre-pack pool will give its opinion on the transaction and this is to be made available to creditors.
There was a lot of debate about the effectiveness of the pre-pack pool before it was introduced. The more important things to consider now and for the future are whether the pre-pack pool is achieving its purpose and how insolvency practitioners can assist in this.
The pre-pack pool was the suggestion of Teresa Graham, resulting from her review of the pre-pack procedure in administrations. The pre-pack sale of assets in an administration, in particular when the sale was to connected parties, was seen by major creditors and the government as not always being in the best interests of creditors. The pre-pack pool could give an objective and independent opinion about the proposed transaction and perhaps in the long term be an opportunity to show whether pre-packs were really as negative as they had been portrayed.
An insolvency course in April 2016 advised that in the first month of its existence the pre-pack pool received two applications. Copies of SIP 16 reports are of course sent to the RPBs and it is understood that that just one of the RPBs received nine SIP 16 reports involving pre-pack sales to connected parties in the same period. It is still very early days but this could indicate that not many connected parties are using the pre-pack pool.
Better statistics about the pre-pack pool will hopefully be made available in the future. But insolvency practitioners should consider what might happen if the pre-pack pool were to fail because too few connected parties ask for its opinion. Might insolvency practitioners then be blamed, as frequently happens when things go wrong, with claims that connected parties had not been effectively told about and encouraged to use the pre-pack pool? Could this lead to more changes in the legislation regarding pre-pack sales?
It is in the interest of the insolvency profession for the pre-pack pool to succeed and for insolvency practitioners to be seen to be actively encouraging connected parties to ask for the pre-pack pool's opinion. SIP 16 states that 'the insolvency practitioner should ensure that any connected party considering a pre-packaged purchase is aware of their ability to approach the pre-pack pool … ' and this of course is mandatory.
Insolvency practitioners are strongly recommended to ensure that connected parties are given written information about the pre-pack pool and written encouragement to ask for its opinion, as well as to discuss the pre-pack pool at meetings and keep file notes of these meetings. The use of the pre-pack pool may improve as a result and it will also be clear to the RPBs exactly what action has been taken by the insolvency practitioner. The RPBs will expect to see clear evidence of compliance with all aspects of SIP 16.
The website for the pre-pack pool can be accessed on pre-pack pool.
Caroline Clark's insolvency career started over 30 years ago and since 1994 she has specialised in insolvency compliance and regulation.