Creditors get better access to information in company failures

New rules that will require administrators to reveal to creditors the name of the buyer and the price paid when carrying out a ‘pre-pack’ administration will be introduced on 1 January 2009.

Pre-pack administrations tend to be used where commercial pressures require urgent action. The new rules (Statement of Insolvency Practice (SIP) number 16) will require administrators to explain to creditors the background to their appointment and the reasons why they considered that a ‘pre-pack’ sale would be the best outcome for creditors. Administrators will not only have to reveal the name of the purchaser of the business, they will also have to provide details of any connection that the purchaser had with the former directors or shareholders and the price paid.

Graham Horne, Deputy Chief Executive, of the Insolvency Service said: “The Insolvency Service welcomes the greater transparency that the new rules relating to ‘pre-pack’ administrations will provide. Creditors will have better access to information about the new owners of a troubled business providing them with greater clarity about the administration process.”

He went on to say: “Pre-packs can be a good thing, as we agree with the view that in some circumstances they will improve returns to creditors. In addition they can help to preserve the business of the failed company, thereby saving jobs. However, we will be working closely with the bodies that regulate administrators to ensure that SIP16 is put into practice. We will also be looking to use our enforcement powers to clamp down on any directors who misuse the administration process to disadvantage creditors or seek to gain benefit for themselves. We are happy to hear from any creditors who consider they have been disadvantaged.”

Directors of insolvent companies, which includes those going through administration, can be banned by the Insolvency Service for a period of between 2 to 15 years if their conduct in the period leading to the insolvency proceedings is considered to be unfit.

Anyone who wishes to complain about a pre-pack administration or considers that they have been unduly disadvantaged by an administration (or other corporate insolvency process) can telephone The Insolvency Service hotline on 0845 601 3546 or email: enforcement@insolvency.gsi.gov.uk

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