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ABI calls on Insolvency Service to improve transparency of prepack administrations

The ABI is calling for reforms to the system that regulates ‘pre-pack' administrations, to give unsecured creditors more protection against business failures. A ‘pre-pack' is the process of selling an insolvent company straight after it enters administration, enabling it to trade under the same name and with the same management, but with unsecured creditors highly unlikely to recoup any of their losses. We have written to the Insolvency Service, proposing enhancements to its Statement of Insolvency Practice 16 (SIP 16), which regulates the actions of insolvency practitioners acting in a pre-pack administration. The ABI's recommendations include:  

  • Strengthening implementation of SIP 16 to ensure compliance, possibly by the Insolvency Service assuming direct responsibility for enforcement.
  •  A ban on the same insolvency practitioner acting as adviser to a distressed company both before and immediately after administration, thus introducing a "second pair of eyes" into the pre-pack process to ensure that the proposed arrangements are genuinely in the best interests of all creditors.
  • Insolvency practitioners having a duty to return any unsold goods without undue delay.  

Nick Starling, the ABI's Director of General Insurance and Health, said:  

"Recent developments in the UK insolvency regime have had a disproportionately negative effect on unsecured creditors. A system designed to promote corporate survival and employment risks preserving large companies at the expense of their smaller suppliers, potentially leading to more jobs lost than saved.  

"Our main concerns are the complete lack of transparency in pre- pack administrations, and the absence of a voice for unsecured creditors during the insolvency process.    

"Often suppliers are trading blindly with a company that knows it's about to enter into a pre-pack, right up until when the deal is done. Suppliers with trade credit insurance will be covered for their losses, but the lack of transparency leaves insurers facing an unlevel playing field and uninsured suppliers out in the cold."  

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Last updated 01/07/2016