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Is the pre-pack pool here to stay?

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This winter we’ve seen the launch of the Pre-Pack Pool, voluntary assessment body for pre-pack insolvencies, brought in to restore trust in pre-pack insolvency as a form of business rescue.

The Pre-Pack Pool was introduced through amendments to The Insolvency Act 1986 in The Enterprise Act 2002 to best realise the assets of insolvent companies, allow for a viable business to continue and reduce job loss.

Pre-pack sales are generally agreed at a time when it is known that the company will be going into administration but before the formal insolvency of the company actually happens, preserving its value. It was intended to be a tool to enable the viable parts of a business to be sold on, separate from the debts. However, many regarded pre-packs as unfair for competitors and creditors alike.

In response to the criticism, the government amended the Statements of Insolvency Practice (SIP 16) rules which became to require insolvency practitioners to be more transparent about the process and commissioned an investigation into pre-packs.

One of the results of the consultation conducted by senior accountant Teresa Graham was the launch of the voluntary assessment body, Pre-Pack Pool (PPP). For £800 the independent group will now give its opinion on the viability of a pre-pack. They will deliver one of the three responses within 48 hours: ‘the pre-pack is not unreasonable’, ‘the case for a pre-pack is not unreasonable but there are minor limitations in the evidence provided’ or ‘case for pre-pack not made’. 

Whilst marketed as an industry game changer, the Pre-Pack Pool has done little to placate the industry and respond to growing concerns over unscrupulous directors of limited companies ditching their debts through pre-pack. The announcement has been greeted with a fair degree of scepticism from those in the industry given the fact that this is a voluntary process and the insolvency practitioner does not need to take the decision of the PPP into account when determining whether the sale should proceed. As the Pre-Pack Pool is voluntary, only those with a legitimate claim who know they will pass would go to the consortium. Cases where there is a potential question mark over the viability of pre-pack are likely to avoid the scheme.

Another aim of the Pre-Pack Pool was to gain the buy-in of creditors who often feel short-changed by it. It is yet to be seen whether creditors will support a pre-pack business that has been through the system and gained a favourable review. Without it, there is very little incentive for anyone to go to the Pre-Pack Pool.

Only launched last month, the Pre-Pack Pool still has a long road ahead to gain the support of the industry and creditors alike. It will be interesting to see the first set of data reflecting on the numbers of insolvency cases taken to the body and the responses received.