In our June seminars we discussed the Pre-Pack Pool and the proposed changes to SIP 16. The revision was recommended by Teresa Graham as part of her independent review into pre-packs in June 2014, and the new SIP 16 was introduced on 2 November 2015 to coincide with the launch of the Pre-Pack Pool.
Key provisions of the revised SIP 16, which remains virtually unchanged from the draft issued in January this year, include:
- New introductory paragraphs highlighting the need for transparency, greater scrutiny of sales to connected parties and the importance of acting in the best interests of creditors as a whole;
- A requirement for IPs to make purchasers aware of the Pre-Pack Pool and the opportunity to approach it for an independent opinion on the proposed sale;
- A statement that the ability to approach the Pre-Pack Pool, together with the requirement to prepare a viability statement for the purchaser (demonstrating why the business is likely to remain as a going concern for at least 12 months), is likely to increase stakeholder confidence;
- A requirement for IPs to make clear that their role is not to advise directors or connected parties in the pre-appointment period;
- A requirement for IPs to provide detailed explanation and justification for the pre-pack, including details of alternatives considered, and keep records to this effect;
- A requirement to provide a SIP 16 Statement to creditors (within the first notification and within seven days of the sale) which would allow a reasonable and informed party to conclude that the pre-pack was appropriate and that the IP acted with due regard for the creditors' interests. This may require a greater level of detail where the sale is to a connected party;
- A requirement to conform with the 'marketing essentials' outlined in the Appendix, which place more emphasis on marketing than was previously the case;
- A requirement to advise that valuations should be carried out by independent valuers or advisors with professional indemnity insurance.
Please note it is not the IP's role to advise directors and connected parties in the pre-appointment period in connection with approaching the Pre-Pack Pool. It is yet to be seen whether directors will take it upon themselves to consult the Pool, or whether they will seek advice and assistance from IPs, lawyers, or other insolvency professionals who are unconnected to the proposed pre-pack.
Responsibility for monitoring compliance with SIP 16 passed from the Insolvency Service to the RPBs as of 1 November 2015.
Only time will tell whether purchasers will make use of the voluntary Pre-Pack Pool, and whether the new SIP 16 will achieve the goal of increasing creditor confidence in Pre-Packs. If not, the Secretary of State may introduce formal regulations.