The revised SIP 16 came in to effect on 1 November 2013 in relation to pre-packaged sales in administration (“pre-packs”). The current reforms follow a series of government reports and consultations beginning in 2010 (the “2010
Pre-packs have been criticized in the past for a perceived lack of transparency and accountability causing potential prejudice to unsecured creditors. They have also been condemned as ineffective and unfair as they can block access to outside parties which
does not result in the maximum value being achieved for the business on any sale.
In summary the new guidance aims to improve the transparency of pre-pack transactions by placing more emphasis on the need to highlight the administrator’s different roles during the pre-pack, and requiring a greater level of information be provided to creditors
However, there remains no obligation to provide advance notice to creditors where the administrators propose to sell a significant proportion of the company’s assets or business to a connected party. This had been a proposal in previous consultations, including
the 2010 consultation.
The main changes are:
• A detailed narrative explanation and justification of the pre-pack and the sale should be provided to creditors with the first notification to creditors and in any event within 7 calendar days of the transaction. This should then be provided in the Statement
of Proposals filed at Companies House;
• The Administrator should seek approval of the proposals as soon as practicable after appointment;
• Information to be provided to creditors should now include:
o Details of Charges
o Details of previous sales of the business by office holders in the previous (at least) 24 months and disclosure of any involvement by the Administrator or the Administrator’s firm;
o More extensive information regarding valuations obtained;
o Any information necessary to ensure a transparent explanation of the transaction where there has been a group transaction;
o Details of sale consideration by asset categories and split between fixed and floating charges.
The Insolvency Service has confirmed that it will be withdrawing SIP 42 when the revised SIP 16 comes into effect.
The new SIP 16 does not reflect a significant departure from its predecessor. It should be carefully followed by IP’s but also serve as a valuable reminder to observe their statutory and fiduciary duties.
The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Berg or any of its partners or employees. Professional legal advice
should be obtained before taking, or refraining from taking, any action as a result of this article.