Annual Report 2008

Corporate Insolvency: Pre-packs in Administrations

As regards the conduct of pre-packs by IPs, we recommend that:-

• In monitoring the reports of IPs to creditors under SIP 16 both the insolvency regulators and the Insolvency Service should check that the administrators in such cases have taken all reasonable steps to market the business or to approach other possible buyers;
• The Insolvency Service and the insolvency regulators should also monitor compliance with the requirement in the new Code of Insolvency Ethics that IPs, who have previously advised the directors of a company prior to its entering administration, should not accept an appointment as the administrator when there is a material risk that they may be seen as lacking the necessary objectivity and independence to serve the interests of all the creditors. IP partnerships and firms should have procedures in place to prevent such appointments and the insolvency regulators should monitor compliance in individual cases; and
• Any review of the conduct of directors following a pre-pack should consider whether either fraudulent or wrongful trading has taken place. Appropriate action