The term “Pre Pack” is commonly used in the insolvency industry and refers to a pre-arranged agreement that the company and or its assets will be sold by the insolvency practitioner immediately on appointment, usually via Administration and involving a sale to connected parties (the Directors of the insolvent company). Whilst perfectly legal, the “Pre Pack Admin” has faced heavy criticism at times, principally due to the lack of transparency and participation afforded to creditors prior to completion of sale.
However, in an effort to improve transparency and in turn creditor perception, regulation surrounding the process has been tightened. Firstly with the introduction of SIP 16 (Statement of Insolvency Practice) in 2009, which placed significantly increased regulation on the Insolvency Practitioner, and secondly (and more recently), a panel of experts known as the “Pre Pack Pool” may be required to review the proposed sale transaction and provide opinion on it’s credibility.
The number of Administrations has fallen significantly over the last few years, and whilst the driving factor has been the stagnation of the economy, it is reasonable to suggest that the numbers have also eroded as a result of the increased regulation. Arguments can be made for both sides as to whether the reduction in Pre Packs is a good thing or not, but regulation which improves creditor participation of confidence can only be a positive for the insolvency industry.