The Pre Pack Pool\u2019s 2017 Review is at: https:\/\/tinyurl.com\/y92fvvqf<\/a><\/p>\n \u00a0<\/strong><\/p>\n SIP16 Compliance Rate Flatlines<\/strong><\/p>\n Of course, we all know that compliance with the SIP16 disclosure requirements has no real relevance to whether a pre-pack is \u201cgood\u201d or \u201cbad\u201d.\u00a0 Personally, I\u2019d also argue that strict compliance with the disclosure requirements does little to improve perceptions\u2026 not when compliance is measured on whether or not the IP has ticked every last little disclosure box.\u00a0 However, this is what the RPBs are measuring us on, so it can only be to our advantage to try to meet the mark.<\/p>\n The analysis of this rate by each RPB shows an intriguing effect:<\/p>\n Last year, the stats for the two largest RPBs appeared poles apart: the IPA\u2019s compliance rate was 91% but the ICAEW\u2019s was less than half this figure, at 39%.\u00a0 But now look at those two RPBs\u2019 rates: they have converged on 59%.\u00a0 How odd.<\/p>\n I very much doubt that the IPA\u2019s IPs have got decidedly worse at SIP16 compliance over the year.\u00a0 I wonder if it has more to do with RPB staff changes \u2013 perhaps it is more than coincidental that an ICAEW monitoring staff member moved to take up a senior role within the IPA in late 2016.<\/p>\n What about the change in the ICAEW\u2019s IPs\u2019 fortunes last year?\u00a0 It is more difficult to identify a trend in the ICAEW\u2019s figures, as they reviewed only 23% of all SIP16 statements received in 2017 \u2013 they were the only RPB to have reviewed only a sample, which they chose on a risk-assessment basis.\u00a0 The ICAEW had focused on SIP16 statements submitted by IPs for the first time, or for the first time in a long time, or by IPs whose previous statements had fallen short of compliance.\u00a0 On this basis, it is encouraging to see such an improved compliance rate emerging from what might seem to be the high risk cases.\u00a0 It makes me wonder what the compliance rate would have been, had the ICAEW reviewed all their SIP16 statements: rather than the flatline, would we have seen an overall strong improvement in the compliance rate?<\/p>\n From my personal reviewing experience, I am finding that many SIP16 statements are still missing the 100% compliant ideal, but the errors and omissions are far more trivial than they were years\u2019 ago.\u00a0 I suspect that few of the 38% non-compliant statements spotted by the RPBs contained serious errors.\u00a0 Having said that, earlier this year the IPA published two disciplinary consent orders for SIP16 breaches, so we should not become complacent about compliance, especially as pre-packs continue to be a political hot potato and now that the RPBs have been persuaded by the Insolvency Service to publicise IPs\u2019 firms\u2019 names along with their own names when disciplinary sanctions are issued.<\/p>\n \u00a0<\/strong><\/p>\n A Resurgence of Connected Party Sales<\/strong><\/p>\n Regrettably, the Insolvency Service\u2019s 2017 review provided less information on pre-packs than previous reviews.\u00a0 No longer are we able to examine how many pre-packs involved marketing or deferred consideration, but we can still look at the number of sales to connected parties:<\/p>\n Last year, I pondered whether the pressure on IPs to promote the Pre Pack Pool may have deterred some connected party sales.\u00a0 I was therefore interested to see that, not only had the percentage of connected party sales increased for 2017, but the percentage of referrals to the Pool has decreased \u2013 coincidence?<\/p>\n Personally, now I wonder whether the presence of the Pool has any material influence on pre-pack sales at all.\u00a0 I suspect that the increased percentage of connected party sales may have more to do with the economic climate: who would want to take on an insolvent business with such economic uncertainties around us?\u00a0 I suspect that now it is more and more often the case that connected parties are the only bidders in town.<\/p>\n <\/p>\n Insights of the Pre Pack Pool <\/strong><\/p>\n With such a tiny referral rate \u2013 the Pool reviewed only 23 proposed sales over the whole of 2017 (there were 53 referrals in the previous 14 months, since the Pool began) \u2013 does the Pool have any real visibility on pre-packs?<\/p>\n The Pre Pack Pool issued its own annual review in May this year.\u00a0 Here is an analysis of the opinions delivered by the Pool:<\/p>\n This seems to suggest that the quality of applications being received by the Pool is deteriorating.\u00a0 But, as the Pool gives nothing much away about how they measure applications, I am not surprised.<\/p>\n The Pool\u2019s review states that: \u201cAlthough the referral rate is much lower than expected, the Pool does perform a useful function where it has been approached.\u00a0 Feedback from both connected party purchasers and creditors has been positive where we have received it.\u201d<\/p>\n But what exactly are the benefits of using the Pool?<\/p>\n The Pool suggests that creditors\/suppliers could put more pressure on Newcos to make use of the Pool, but it also notes that less than 1% of all complaints to the InsS in 2016 were about pre-packs (shame the Pool\u2019s report did not refer to the number of pre-pack complaints in 2017: zero).\u00a0 Maybe there is little pressure put on purchasers to approach the Pool, because the reasonableness or not of the pre-pack doesn\u2019t really come into it when creditors are deciding to supply to Newcos.\u00a0 The Pool review suggests that major stakeholders such as lenders and HMRC could insist on a Pool referral, but why should they when the Pool has yet to prove its value?<\/p>\n \u00a0<\/strong><\/p>\n What makes a Bad Pre-Pack?<\/strong><\/p>\n Stuart Hopewell, director of the Pool, has been quoted as stating that he \u201chas seen cases where the objective [of the pre-pack] was avoidance of liabilities\u201d, which led to the tagline that \u201cbusinesses are sidestepping tax bills amounting to tens of millions of pounds using an insolvency procedure that the government is considering banning\u201d (Financial Times, 26\/11\/2018).<\/p>\n How does Hopewell spot these abuses?\u00a0 The Pool itself is not at all transparent about what, in its eyes, results in a \u201ccase not made\u201d opinion, but the same article referred to the Pool giving \u201ca red card, based on the tax situation\u201d.\u00a0 This suggests to me that their focus may be more on how the company became insolvent, rather than whether the pre-pack sale is the best outcome for the creditors at that point in time.\u00a0 It seems to me that the Pool may be deciding that the pre-pack is the final step in a director\u2019s long-term plan to rack up liabilities and walk away from them, whereas I suspect that most IPs first see a director who \u2013 as a result of wrong decisions or for reasons outside their control \u2013 is at the end of the road, having racked up liabilities they can no longer manage.\u00a0 What should happen?\u00a0 If the pre-pack were refused, the likely outcome would be liquidation with strong chances that the director would, via a S216 notice, start up again, possibly with a cluster of the original workforce and assets purchased at liquidation prices.\u00a0 On the other hand, if the pre-pack were completed, it would most certainly generate more sales consideration and would be less disruptive for the employees, customers and suppliers.\u00a0 But wouldn\u2019t refusing a pre-pack result instead in a business sale to someone else, an unconnected party, even if at a reduced price?\u00a0 I think that this is doubtful in the vast majority of cases.<\/p>\n <\/p>\n It\u2019s not all about the Pool<\/strong><\/p>\n The Insolvency Service\u2019s annual review lists some questions that its pre-Sunset Clause pre-pack review will seek to answer:<\/p>\n While these are all valid questions, I do hope the questions won\u2019t stop there.<\/p>\n Ever since Teresa Graham\u2019s recommendations in 2015, the Pre Pack Pool has occupied the limelight.\u00a0 I think that\u2019s a real shame, as I believe that other things are responsible for the improvements to the pre-pack process that we have seen over time.\u00a0 Although I complain about the micro-monitoring that the Insolvency Service has inflicted on SIP16 compliance, it cannot be denied that the regulators\u2019 emphasis on SIP16 compliance has improved the amount of detail provided.\u00a0 More importantly perhaps, the RPBs\u2019 emphasis on documenting decisions has helped some IPs question why certain strategies are pursued \u2013 most IPs do this anyway, but I think that some need to challenge their habitual reactions and sometimes exercise a bit more professional scepticism at what they\u2019re being told.<\/p>\n The mood music around the pre-pack review seems to be about increasing the Pool\u2019s reach, potentially making a referral to the Pool mandatory (for example, see R3\u2019s May 2018 submission: https:\/\/tinyurl.com\/y7kf22ul<\/a>).\u00a0 However, as with all proposed reforms, the first steps are to identify the problem and to define what one wants to achieve.\u00a0 I would question whether the problem is still a lack of public confidence in pre-packs \u2013 it seems to be more about a lack of confidence in dealing justly with directors who ignore their fiduciary duties in a host of different ways \u2013 and, even if it were about confidence in pre-packs, we\u2019re a long way from determining whether the Pool is the best tool to fix this.<\/p>\n <\/p>\n Slow Progress<\/strong><\/p>\n Finally, here is a summary of other items that were on the Insolvency Service\u2019s to-do list at the time of publication of their 2017 annual review.\u00a0 Of course, to be fair the government has kept the Insolvency Service otherwise occupied over the year.\u00a0 You might be forgiven for having a sense of deja-vu \u2013 it looks frighteningly similar to 2017\u2019s list and I assume that the tasks will now be carried over to 2019:<\/p>\n As HMV has demonstrated, buying a business out of an administration does not guarantee its survival.\u00a0 But the sale of the HMV business 5 years\u2019 ago was not a pre-pack \u2013 the Company had traded for several months in administration … Continue reading ![\"PP118\"](\"https:\/\/thecompliancealliance.co.uk\/blog\/wp-content\/uploads\/2018\/12\/PP118-300x170.png\")
<\/a><\/p>\n![\"PP218\"](\"https:\/\/thecompliancealliance.co.uk\/blog\/wp-content\/uploads\/2018\/12\/PP218-300x170.png\")
<\/a><\/p>\n![\"PP318\"](\"https:\/\/thecompliancealliance.co.uk\/blog\/wp-content\/uploads\/2018\/12\/PP318-300x165.png\")
<\/a><\/p>\n![\"PP418\"](\"https:\/\/thecompliancealliance.co.uk\/blog\/wp-content\/uploads\/2018\/12\/PP418-300x173.png\")
<\/a><\/p>\n\n
\n
\n
\n
\n
\n