In one of his final acts as Minister for Employment Relations  Ed Davey released a statement which back tracked markedly on the government’s proposed introduction  of a 3 day notice period for sales in a pre-packed situation.

Much creditor discontent has focussed on a perceived  lack of transparency, “phoenix companies” often being the purchaser and the, on occasion, high level of fees involved in this pre appointment period. This dissatisfaction was covered extensively by the press and resonated with the Government.

Unsecured creditors are routinely first notified of a pre-packaged sales after the event . The proposed changes had intended to introduce a 3 day notice period to allow for objections from interested parties. Whilst noble in concept, many serious commentators considered the proposals flawed insofar as the notice period would likely have jeopardised many pre-pack deals themselves and led to many creditors withholding the necessary goods required to facilitate on-going trading. Such circumstances are likely only to decrease the value of funds available for unsecured creditors.

Strict adherence to Statement of Insolvency Practice 16 and its disclosure requirements remains the rule book by which Insolvency Practitioners should live when disclosing Pre-packed sales.  Other potential controls which could foster greater public confidence in pre-packed sales:

1.)    The  use of multiple valuations of businesses/assets in order that it can be demonstrated that pre-pack achieves best price.

2.)     The independent review of proposed pre-packed sales by other professionals on a confidential basis. Some large firms operate Pre-Pack Committees whereby colleagues of the proposed Administrator will vote as to whether to approve the firm conducting the sale. Whilst confidential review by other Insolvency Practitioners may prove impractical, the Insolvency Service could provide a function.

In the right circumstances pre-packed sales can be a valuable tool for the protection of employment and the continuance of trade. However, if used inappropriately they can severely undermine public confidence in the UK insolvency regime.