Toothless SIP 16 can't stop dodgy deals

Guidlines to control pre-packed administrations are failing to bite, as Adam Hooker discovers


Since the implementation of the Statement of Insolvency Practice 16 (SIP 16) guidance note in January 2009, insolvency practitioners (IPs) have been required to publish details of all pre-pack administrations they're involved in. In particular they should reveal why a pre-pack was the best option, providing creditors with details of rival bidders, the price paid and, crucially, any connections that the new directors have with the former company.

However, more than 12 months later, the debate about pre-packs continues to rage and, as far as most of the print industry is concerned, little seems to have changed. Indeed, the Insolvency Service itself appears to be losing patience; in its review of the second half of 2009 it flagged up "serious concerns" about the level of compliance with SIP 16.
According to the report, 38% of the 497 pre-pack administrations in the second half of 2009 were not fully compliant. This could mean that either the level of disclosure was insufficient or that the SIP 16 report was not sent in a timely fashion (judged to be within 14 days of the completion of the administration process).

Of the 188 pre-packs that the Insolvency Service decided were non-compliant, only 36 (or 7% of all 1,823 administrations in the six month period) were deemed to have constituted a serious enough breach to warrant further action, leading to 30 IPs being reported to their authorising bodies. In addition to its concerns over the level of non-compliance, the Insolvency Service has claimed that it has evidence that the true extent of pre-pack sales is being under-represented. It said that there have been a number of instances when creditors have complained about an administration where a pre-pack sale has taken place, yet no SIP 16 report has been sent to either the creditors or the Insolvency Service.

Lack of enforcement
One factor that could be affecting the level of non-compliance is that there is presently no statutory or regulatory requirement for IPs to send SIP 16 information and no defined legal penalties for failing to do so. Ian Neal, managing director at Coatings Direct, believes that this needs to be rectified. "I am alarmed by the fact that only 7% of cases were investigated, when 38% failed to meet the guidelines," he says.

"I don't see how they can analyse whether the IPs have done anything wrong if there aren't any statutory guidelines as to what is right and wrong. Without details on the actual activities, how can we judge whether SIP 16 has been a success?"
The Corporate Complaints Team received 50 complaints about pre-packs in the latter half of 2009, 16 of which have been identified for further enquiry. However, the complaints have yet to result in any meaningful action.

The document states: "Whilst most complaints have raised the possibility of pre-packs being approved in dubious circumstances, often following a perceived collusion between the directors and the relevant IPs, more detailed enquiry has failed to substantiate this type of allegation."

Slapped wrists
What may be more shocking is that there has been very little censure of those found to be in breach of the rules. The report includes a section on the 29 referrals to governing bodies that were reported in the first six months of
SIP 16. Of these, the Insolvency Practitioners Association handed out two Consent Orders, leading to £250 fines plus £250 costs, eight formal reminders to comply with SIP 16 and two warning letters.

Business minister Ian Lucas has now suggested that a statutory footing could be introduced for SIP 16. But Colin Roberts, managing director at Business Forms Express, believes that what is needed is an ombudsman to look over the practice, rather than any legal changes. He says: "I have spoken to several MPs about this and they don't understand what it is we want. At the moment the only way to overturn these things is to go through the High Court. We need an expert that we can go to for reference, someone that understands the industry."

Clarity needed
Webmart managing director Simon Biltcliffe agrees that there is not necessarily any need to introduce legal definition. "These deals are incredibly opaque," he says. "There should be clear details, made available publicly, of who was spoken to and why this deal is best for the creditors. It is a government thing - legal framework, so it's down to them."

The government, however, has shown little enthusiasm for interfering; no investigation has yet been scheduled. With a general election looming and the economic recovery still fragile, those of a cynical disposition might suggest that the government won't do anything that might risk raising unemployment. Even if the government was prepared to rock the boat, given the typical pace of public sector reform, any proposed changes are unlikely to make it onto the statute book before 2011.

With little that can be done to enforce SIP 16 and little likely to happen to change that in the near future, the row over pre-packs deals is likely to continue unabated.