Channel lauds pre-pack shake-up
Finance figures support government investigation, claiming seven in 10 channel pre-packs are too easy
A closer look: the government is investigating ways to boost "transparency and confidence" in the pre-pack system
Channel players have welcomed increased government scrutiny of pre-pack company sales after claiming as many as 70 per cent are “cynical” and “too easy”.
Pre-packaged sales can be arranged for foundering companies prior to the commencement of formal insolvency procedures.
The Statement of Insolvency Practice 16 (SIP16) guidance paper was introduced last year to shore up regulations. Recent data from the Insolvency Service claimed more than one in three SIP16 disclosures filed by insolvency practitioners in the second half of last year were non-compliant.
The Department of Business, Innovation and Skills (BIS) has now launched a consultation to boost “transparency and confidence”.
Nitin Joshi, founder of ChannelMoney, revealed he has “undertaken scores of pre-packs” and asserted that, theoretically, “there is no reason why they should not be deployed”. But he added he “would welcome greater focus on both value for creditors and accountability”.
“Distributors have routinely experienced malpractice,” he explained. “They appreciate that companies fail and are fully engaged to the reconstruction mantra. But they do not like to see a moratorium put in place which leaves them both
as disenfranchised bystanders to a cynical, inside-track, buy-back.”
Joshi’s assertion that “most businesses that enter into administration are sold back to the directors” is backed up by figures from insolvency trade body R3. In the past year, companies were bought back by previous owners in 65 per cent of pre-packs carried out by R3 members.
R3 president Peter Sargent has claimed he "welcomes any consultation that looks at pre-packs". But he questioned the veracity of the claim that one in three SIP16s is non-compliant.
“The perception that pre-pack rules need strengthening derives largely from the Insolvency Service’s own misreporting,” he added.
But Eddie Pacey, director of credit at distributor Bell Micro, claimed pre-pack rules needed to be tightened. He estimated that seven in 10 channel sales were “too easy”.
“It is easy for people to abuse the system,” he said. “I do not mind supporting pre-packs if the new business arising is not effectively a replica of the old one and if there is a definite change in the way the business does things.”