Pension Protection Fund issues pre-pack administration guidance

The Pension Protection Fund (PPF) issues new guidance on pre-pack administrations

What is the significance of the PPF's new guidance in practice?

A pension scheme frequently falls as one of several of a company's unsecured creditors when a company becomes insolvent. Often this will mean that the PPF must meet the insolvent company's pension liabilities as there will be no funds in the insolvent company to meet these.

For some time now the PPF has expressed concern where a pre-pack is concluded and the unsecured creditors have not been consulted before this has taken place. In particular when a pre-pack sale has taken place to parties connected to the directors of the insolvent company. With these types of pre-pack sales, there is always the inherent risk of a 'phoenix' situation occurring, with the old debts being deliberately left behind and the directors effectively carrying on as before.

As a result, in future pre-pack situations, where no consultation has taken place, or where it has but the concerns of the pension trustees have not properly been taken into account, the PPF has issued new guidance outlining its intention to routinely propose the appointment of a new Insolvency Practitioner (IP) to supervise the company voluntary arrangement (CVA) or liquidation of the company post pre-pack when it is proposed that the same IP continues from the administration to CVA or liquidation.

It is presumably hoped in this way that there will be some independent scrutiny for the unsecured creditors, and may be a preventative measure for any unscrupulous directors who were looking to a pre-pack as a way of phoenixing their situation.

Full details of the guidance can be found here.