More must be done to ensure that pre-arranged sales known as ‘pre-packs’ of insolvent businesses to ‘connected parties’ such as former directors, are fair to customers and creditors, the government says.
The proposals include the introduction of a ‘pre-pack pool’ where deals can be scrutinised by an independent person before going ahead.
The lack of parliamentary time before the May 2015 election means that there will be voluntary measures, to increase the transparency of ‘pre-pack’ sales.
When parliamentary time allows, the Business Innovation and Skills (BIS) Department will:
- Set regulatory objectives
- Increase the powers of the oversight regulator to sanction a regulator
- Provide the oversight regulator with a power, where it is in the public interest, to apply to court for a sanction against an Insolvency Practitioner (IP)
- Enable the oversight regulator to require information from the regulators, an IP, or persons connected to the IP, to carry out his oversight role
- Reserve power to replace the regulators with a sole regulatory body.
- The measures follow an independent review commissioned by BIS.
In a ‘pre-pack’ sale, the business is marketed to a new buyer before the proposed insolvency procedure begins and sold immediately afterwards.
Although the practice can be used to preserve ultimately viable businesses and save jobs it has attracted criticism, as unsecured creditors do not need to be given advance notice of a pre-packaged sale.
Where the same people are involved in the new business, a pre-pack gives them the opportunity to ‘walk away’ from their debts.
Government figures show that 70% of pre-packs are to parties connected with the failed company, and the new business is less likely to succeed when the old owners/directors are involved.
There have been a number of pre-packs in the coach and bus industry (operators, suppliers and vehicle manufacturers/convertors). In extreme cases, the same people are involved in the new businesses, which repeatedly ‘phoenix’ into new entities.
When these types of business sales are carried out properly, they allow the viable parts of the business to continue operating, and jobs are saved,â€ says Business Minister Jenny Willott [pictured]. But it is also important for those who are owed money to know they are getting the best possible deal in the circumstances.
We will be working with business and industry to implement these recommendations in full and we believe it will help restore trust and confidence in pre-pack deals. We will monitor progress closely and will take the power to legislate if necessary.