Insolvency Reforms to Increase Industry Confidence

A number of changes within the insolvency industry have been recommended in a recent independent review, following criticism of pre packed administrations within the media.

Pre-packed administrations are the process by which the business and assets of a failing company are prepared for sale by an administrator before formal administration takes place and their creditors are notified of the business failure. It can preserve the value of a business and provide the opportunity for the business to continue, which in turn can preserve jobs within the company. Around 20,000 businesses go through an insolvency procedure each year, and 600-700 of these are pre-packed.

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Graham also recommends connected parties in a pre-pack administration complete a “viability review” of the company

Theresa Graham CBE, who undertook the review, has recommended a number of changes within the insolvency process, in order to:

  • Increase transparency
  • Boost the survival rates of the purchaser business
  • Reform practices that are linked with lower distributions to creditors

Changes and improvements to the marketing of businesses that pre-pack are recommended, as well the insistence that valuations be carried out by a valuer who holds professional indemnity insurance. Other changes include a change in the monitoring of SIP16 statements, through a shift in responsibility from the Insolvency Service to the Recognised Professional Bodies.

The insolvency industry is being given the opportunity to implement any reforms voluntarily; however, there are recommendations within the report for the government to enforce the changes with legislation “as a last resort”. Jenny Willott, parliamentary under secretary of state for employment relations and consumer affairs, agrees with this recommendation, commenting:

“It would be sensible to provide the recommended power to legislate if necessary.”

Vince Cable, Secretary of State for Business Innovation and Skills, commissioned the review in order to boost confidence in the insolvency regime. He comments:

“Viable businesses – and the jobs of those they employ – should not be lost to the economy unnecessarily… If there is confidence in how rescue and insolvency operate, this supports lending which in turn supports growth – a central aim for this government.”