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When Teresa Graham published her independent report into pre-pack administrations in June 2014, she concluded that there was, at that time, no need for legislative intervention. Instead, she expressed the hope that the insolvency industry would back her six recommendations on how to improve confidence and transparency in ‘connected party’ pre-packs—broadly, where the former directors or owners are the buyers. Paul Sidle, Rebecca Jarvis, Richard Bussell, Richard Hodgson and Mandip Englund of Linklaters discuss the recommendations.
The recommendations focussed on improving SIP16, notably as regards marketing and valuation, and also promoted the idea of the pre-pack Pool and Viability Statement. The two key recommendations were that in a connected party pre-pack the buyer should seek an opinion from a new Pool on whether the grounds for the proposed pre-pack sale are reasonable; and the buyer should prepare a viability review stating what the buying entity will do differently for the business to survive for at least 12 months from the date of the proposed purchase. The Pool and Viability Statement reforms were introduced from 1 November 2015. Significantly, the measures introduced are entirely voluntary. Changes to SIP16 were duly made, and the Pool and Viability Statement became operational in November 2015.
What is potentially at stake is the continued use of pre-packs as a valuable business rescue tool and way of securing the best economic returns for creditors. The government has the power until May 2020 to regulate further—or even ban—connected party pre-packs. Whether, and if so how, it would exercise that power will likely depend on broad political considerations, but the decision will be strongly influenced by the perceived success of the November 2015 pre-pack reforms.
What impact have those reforms had and what more could the insolvency industry be doing to ensure their success?
The Pool—the story so far:
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