Teresa Graham CBE - Leader of the pre-pack

By Robert Outram, The CA magazine

18 February 2015

Teresa Graham CBE talks to Robert Outram about heading up the review of pre-pack administrations.

Teresa Graham had been commissioned by the government to review the highly charged question of "pre-pack" administrations. Out of around 20,000 insolvency procedures every year in the UK, only about 600-700 are pre-packs – that is, where the sale of the business to a new owner is agreed at the same time or ahead of the formal insolvency process. Pre-packs have attracted criticism, however, especially where the sale is to a "connected party", typically the former owner.

Opinions were sharply divided. Many insolvency practitioners (IPs) argued that a pre-pack might often be the only way to ensure the survival of a business as a going concern, especially when the mere fact of going into formal insolvency could lead to the business haemorrhaging staff and customers.

On the other hand, a number of creditors and others argued that the procedure was open to abuse, especially when it is not clear what efforts have been made to get the best price for the business and its assets.

Teresa says her first task was to find out the facts: "Many people had preconceived ideas about pre-packs, but there had been little recent public research."

Benefits of pre-packs

Her conclusions were, first, that there were positive aspects to pre-packs: "For example, high levels of deferred consideration are paid. So creditors do get some benefit and it has meant a flexible insolvency regime for the UK. I do see a place for pre-packs in Britain's insolvency landscape.

"There are problems, however. These include lack of transparency, especially where unsecured creditors feel disrespected, especially with 'connected party' sales, insufficient marketing and poorly explained valuations; and too often there is no consideration of the newco's viability by the newco's directors."

Previous attempts to resolve the issue had met with failure. Teresa's conclusions and recommendations appear, however, to have been broadly welcomed by interests on either side of the argument.

The regime her review recommended is based on the principle of "comply or explain". Teresa stresses: "It is a light touch, not a soft touch."

Key measures include:  

  • The creation of a "prepack pool". Connected parties must present the proposed deal to a pool member, retaining confidentiality and transparency.
  • Viability review. The connected party must review and explain why the newco will be viable, but the IP will not comment.
  • Drafting a revised SIP 16 (the Statement of Insolvency Practice covering reports to creditors in the event of a pre-pack).
  • Six principles of marketing, to ensure better returns for creditors. These include "broadcast rather than narrowcast"; "ensure independence"; and "publicise rather than merely publish".
  • Valuations [for pre-packs] must be carried out by a valuer who holds professional indemnity insurance.
  • Where the above doesn't happen, the administrator must explain why not.

Teresa Graham, who describes herself as "an Italian Geordie" graduated from Newcastle University in 1977. She joined the Newcastle upon Tyne office of Price Waterhouse as a student accountant, taking the ICAEW exams, and transferred to the firm's Department of Privatisation Services in London in 1989.

From December 1986 to August 1987, Teresa was seconded to the UK Government's Enterprise and Deregulation Unit, reporting directly to Lord Young, the then secretary of state for employment and then trade and industry. In March 1988 she was appointed to the Deregulation Advisory Panel , initially for a two-year term, and she went on to serve through two decades. In parallel to this, she joined Baker Tilly in 1989, heading the firm's Business Services department.

As deputy chair of the Better Regulation Commission – which took over the role of the advisory panel – Teresa co-authored Less is More, a ground-breaking report that was the basis for the Legislative and Regulatory Reform Act 2006. The Act was passed to establish statutory principles of good regulation including the aim that, wherever possible, when new regulations are introduced, old ones should be scrapped.

The "five principles of good regulation"

  1. Proportionality - Regulators should only intervene when necessary. Remedies should be appropriate to the risk posed, and costs should be identified and minimised.
  2. Accountability - Regulators must be able to justify the decisions they take and they should expect to be subject to public scrutiny.
  3. Consistency - Government rules and standards must be joined up and implemented fairly.
  4. Transparency - Regulators should be open and keep regulations simple and user-friendly.
  5. Targeting - Regulation should be focused on the problem and aim to minimise any side effects and avoid any unintended consequences.

After stepping down from the post of deputy chair of the Better Regulation Commission in 2008 Teresa was appointed chair of the Administrative Burdens Advisory Board (ABAB) of HM Revenue & Customs and, more recently, a member of HMRC's Office of Tax Simplification.

ABAB's role is to find ways to reduce administrative burdens in the UK's tax regime and to improve the "customer experience"; although Teresa comments: "I hate using the word 'customers' when we are talking about taxpayers as customers assumes choice."

In 2009, in an address to the Chartered Institute of Taxation, Teresa described how HMRC's "can't do" attitude at the time initially led to resistance to ABAB. To counter that, the board set up "challenge panels" in order to challenge key HMRC directorates to make a proportionate contribution to the targets from their area of responsibility. ABAB also gathered views from external sources to feed back to HMRC and provide an objective perspective.

Teresa tells The CA, however, that she welcomes the "digital revolution" in UK tax, for example the apps HMRC has developed with private sector partners.

She stresses: "Compliance should be easy enough such that the taxpayer can decide whether to do it themselves or outsource it, so accountants can focus more on their advisory role thereby adding value and not so much on compliance alone, which adds little."

Career highlights

Teresa Graham's career has included quite a few "firsts", including: the first female "Young Accountant of the Year" (1988); the first woman Chairman of the London Society of Chartered Accountants; and the first female laureate in the ICAEW's Award for Outstanding Achievement (2007). She was awarded a CBE in the 2007 New Year honours list for public service and an OBE in the 1997 New Year honours list for services to better regulation and the small firms sector.

She is a member of the advisory board of Pagefield, a communications business, and chair of Salix Finance, an independent, publicly funded company, dedicated to giving loans to the public sector for energy efficiency projects. She is also a non-executive director of the British Business Bank, which provides finance to SMEs.

Also dear to Teresa's heart is her role as "head of parties and fun" at the Lexi Cinema, a social enterprise, digital, boutique cinema in Kensal Rise, North London. The cinema covenants 100 per cent of its profits to a charity in South Africa called The Sustainability Institute, a pioneering sustainable living and learning centre based in rural Stellenbosch, South Africa.

It's her firm belief that business should be fun – and that it should not be burdened with onerous and ineffective red tape. As she puts it: "I am a deregulator at heart".


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