ShareSoc has been actively involved in consulations with government regarding pre-packaged administrations. It has been a frustrating process, dominated by insolvency practictioners with a vested interest.
We have today sent the following letter to Norman Lamb, Minister for Employment Relations, Consumer and Postal Affairs, who chaired the last meeting. The letter sets out why we feel change is needed:
Dear Mr Lamb,
Regarding the recent meeting on the subject of Pre-Pack Administrations. It would be unfortunate if you took my comments on your chairmanship of the meeting in a negative way. But as I saw it, to try and deal with such complex issues in so short a meeting, particularly when the representatives of the Insolvency Service seemed to have already decided that substantial reform of the system was unnecessary (and possibly briefed you accordingly beforehand), is rather to trivialise a very important subject.
In addition it was very annoying to see representatives of the Insolvency Practitioners community give some quite misleading information about the procedures that are followed by “reputable” practitioners and the impact/outcomes of pre-pack administrations. Their view seemed to be that it was a few disreputable firms who were operating at the lower end of the market (i.e. in smaller firms), that were the sole problem and that a few changes to regulations such as SIP16, or to the complaints procedure, could resolve these problems. This is a grossly mistaken point of view.
In reality the whole system is riddled with unethical practices by the nature of the process followed. It is also based on unsound moral principles and any pre-packs are effectively executed in secret and are beyond legal challenge.
Let me explain the last point. The whole objective of a pre-pack (even though there is allegedly some “marketing” of the business – more on that below) is to keep the process secret until it is ready to be crystallised. By such means, suppliers and customers are kept in the dark so they continue to trade with the business.
When the pre-pack is ready to be crystallised, the administrator is appointed and a few minutes later sells the business to the contracted buyer. The assets are effectively transferred at that point and any legal challenge to this transfer becomes very rapidly untenable. In practice, the pre-pack cannot be challenged in law before it takes place simply because nobody knows about…
