Insolvency what the in-house lawyer needs to know. Nick Pike Partner, Restructuring Group

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1 Insolvency what the in-house lawyer needs to know Nick Pike Partner, Restructuring Group

2 Pre-Packs Administration Purpose and Key Features What is a Pre-Pack? Why are Pre-Packs controversial? Legislative/Regulatory control and reform Can you challenge a Pre-Pack? Challenges to Administrators conduct Challenges to directors conduct

3 Administration the Statutory Purpose An Administrator has a statutory purpose to:- rescue the company as a going concern; failing which achieve a better result for the company s creditors as a whole than if the company were wound up; failing which realise property and make a distribution to secured or preferential creditors

4 Administration Key Features The directors powers are suspended and the Administrators take control of the company A moratorium protects the business from claims, actions and recovery of assets Unsecured creditors often get little direct return The Administrators always seek to exclude any personal liability on their part

5 What is a pre-pack? Company goes into administration Its business and/or assets are immediately sold The sale was arranged before the administrator was appointed

6 What is a pre-pack? Traditional administration Appoint Market Test Negotiation Sell Pre-pack administration Market Test Negotiation Appoint Sell

7 Why are pre-packs controversial? Sales back to directors Lack of marketing? Lack of transparency? Creditors left behind or credit deliberately incurred which was never going to be paid? A stitch-up?

8 Legislative/Regulatory Control of Pre-Packs Statement of Insolvency Practice 16 (SIP 16) Details of the pre-pack disclosed to creditors (but not legally binding) Insolvency Service reports on the operation of SIP16: the substantial majority...were in our view fully compliant in % of the sample (involving 21 IPs) were referred to the relevant authorising body By 2012 this was down to 4% A trend of increasing compliance Pre-pack pool

9 Can unsecured creditors have any way to challenge Administrators over a pre-pack? Creditors have statutory rights to challenge Administrators conduct for unfair harm or misfeasance The SIP 16 report may help provide creditors with the information that they need to bring such an action Challenge Administrators fees/seek their removal? Alternatively, a liquidator has additional powers to challenge the Administrators conduct

10 How else can unsecured creditor challenge a pre-pack? The Insolvency Service has a pre-pack complaint hotline Are common directors using a similar company name? Have they sent Phoenix notices? Were the directors wrongfully trading pre-appointment?

11 Checklist for reviewing a SIP16 report for warning signs Who is the administrator and what is their reputation? Was the sale to a connected party? Was there an open marketing process pre-appointment? Did the administrator obtain professional valuation advice? Was the consideration paid in cash or some other way? Did you incur further credit you will not recover after the marketing process started?

12 Liquidation Members voluntary (solvent) Issues to consider when proposing one The declaration of solvency

13 Liquidation Creditors voluntary (insolvent) What happens and how long does it take? Investigation and director disqualification

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