Pre-Pack Pool reports positive first year

CA Jobs - Time for Change
david-menzies By David Menzies, Director of Insolvency

31 March 2017

The Pre Pack Pool, which provides an independent view on the appropriateness of a proposed pre pack sale out of administration, has reported on its first period of operation. David Menzies looks at how the Pool is performing.

The Pre Pack Pool (the Pool) have issued their first Report setting out how the Pool has performed in the first 14 months of operation.

The Pool, which is a limited company and independent of the government and the insolvency and restructuring profession, was formed in November 2015 as a response to recommendations made in the Graham Review into pre pack administrations in 2014, commissioned by the then Secretary of State for Business Innovation and Skills, Vince Cable MP.

The Pool provides an opportunity to obtain an opinion from an independent party to a proposed pre pack sale of a business out of administration where the proposed purchaser is already connected to the business in financial difficulties.

Requesting an opinion from the Pool is an opportunity to assure creditors that the sale has been reviewed by independent business experts and that the case for a pre pack sale has been made.

In the first 14 months of operation the Pool has received 53 applications which equates to just over one in four connected party pre packs.

Nearly 90% of the applications received opinions saying that it was not unreasonable for the proposed pre pack sale to proceed. A quarter of the applications received that opinion but highlighted some minor limitations in the evidence provided to the independent panel member. Only six applications were considered by the panel member to have not made out a case for a pre pack sale.

The Pool notes that only one instance has been noted where the Pool provided a ‘not unreasonable’ opinion and where the purchasing company has subsequently entered another insolvency procedure. That situation came about when a customer of the company in administration refused to novate their contract to the purchaser and the loss of that major customer meant the new business was no longer viable.

After a slow uptake initially, the Pool reports that applications accelerated during the first year and progressed as awareness increased amongst the insolvency, creditor and business communities. Responsibility for using the Pool lies with the connected party purchaser and not the insolvency practitioner or creditors.

Philip King, Chief Executive of the Chartered Institute of Credit Management said:

"The CICM actively supports the objectives of the Pre-Pack Pool and the increased transparency that it delivers. The progress to date has been encouraging."

Neil Bennet, an Insolvency Practitioner with Leonard Curtis, who acted in relation to a pre pack sale which sought an opinion from the Pool said:

“The speed with which the process was dealt with helped to enable an orderly and rapid sale of the business.”

Oliver Parry of the Institute of Directors said:

"The Pre-Pack Pool is an important step in de-stigmatising the pre-pack administration regime, which in many cases represents by far the best outcome for creditors of distressed businesses.

"The IOD has been supportive of this initiative from its original concept and is pleased to see it in action."

The report concludes that the Pool is a key part, although not the only part, of the post-Graham reforms and widespread use of the Pool may help reassure creditors about the pre-pack process. This would help protect the procedure’s place in the insolvency framework where the Government has taken reserve powers to ban connected party administration purchases as part of the Small Business, Enterprise and Employment Act 2015.

The report says:

"As the Graham Review itself says, pre-packs do benefit the UK economy. It would be a shame to lose them: fewer business rescues, more job losses, and lower returns to creditors are possible outcomes in such a scenario."

ICAS is a member of the Oversight Group established to coordinate and oversee the creation, development and operation of the pre pack pool.

Topics

  • Business issues
  • Insolvency

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