Please take a seat before you read this article, you are in for a shock. Earlier this month, the government released the responses to last year’s consultation on pre-packs. Here’s the surprising bit: of 38 respondents to the consultation, 10 believed that the existing insolvency framework provided a sufficient level of confidence that pre-packs would only ever be used appropriately. Shockingly, the 10 "primarily comprised insolvency practitioners and regulators" – who whould have thought? Meanwhile, the bulk of the respondents (some 25), predominantly creditors and trade bodies, indicated that any confidence that pre-packs were being properly used was partial at best, if not completely non-existent.

Despite consultation responses that most in the print industry will have predicted, the government has thrown a curveball, by seemingly paying no attention to the initial consultation and coming up with an entirely new proposal. Of the five options featured last year (see 30-?second briefing), which included ?giving SIP 16 statutory force and preventing an insolvency practitioner that has advised a company pre-administration from being appointed the administrator, none have been taken forward.

Instead, Department for Business Innovation & Skills (BIS) minister Edward Davey issued a brief statement on new measures to improve the transparency of pre-packs. Very little information has been revealed, aside from two proposals: administrators will have to give creditors three days’ notice before an administration takes place and the SIP 16 report is to be included in the administrator’s report, which is available to anyone via Companies House.

The proposals have been broadly welcomed by the print industry although, as expected, there are concerns that they don’t go far enough –the BPIF has already told the government that it will be pushing for more stringent measures. Peter Reeves, production manager for PrintOut at Ealing Council, agrees that the proposals are not strong enough. He says: "It will still be open to interpretation by the administrator, and they will always find justification for their actions. What I would like to have seen included is that if a company is to continue trading in a pre-pack arrangement, all trade suppliers’ outstanding debts must be paid in full over an agreed time, say one year."

Business Forms Express managing director Colin Roberts argues that creditors are not, in fact, the most important people when it comes to pre-pack deals; it is the wider industry that needs to know what is going on. "They haven’t said that they will be opening things up to other bids," he says. "I might be interested in a company down the road but I won’t know about it until the pre-pack is done, so it’s me that should be informed, not the creditors, I could give them a better price." Roberts believes that companies that are to be pre-packed should be announced publicly through trade bodies such as the BPIF, or trade publications such as PrintWeek, so interested parties can be alerted to the situation. However, he adds: "Three days isn’t really enough is it? If I need to get together £300,000 I won’t be able to do that in three days, but it is a start."
Insolvency trade body R3 says it is surprised by the fact the government has opted to introduce a new set of proposals and points out that they may reduce the likelihood of a successful sale. President Steven Law says: "It isn’t a problem telling creditors, but as soon as creditors know, the customers will find out and key employees may leave because of the uncertainty.

"The biggest problem is that it will add to the time in which a deal can be done. Insolvency practitioners already have to give banks five days’ notice, if you add an extra three to that a company could be in uncertainty with no finance for a long time, managers may decide not to try and save the business."

At this stage, with many question marks over what the new measures will include, it is hard to judge how these proposals will affect print, or any industry. According to the Insolvency Service, the changes will be implemented later this year or early in 2012. However, the government has told the BPIF it was proposing to set up a stakeholder group, while R3 was informed that the new proposals would also be consulted on, which would make it quite difficult to get anything out in 2011.

It won’t admit it, but word from inside Whitehall is the government is petrified by the pre-pack phenomenon. It is obviously feeling the pressure from concerned businesses, but, on the flipside, can’t be seen to do anything that puts jobs at risk. Were pre-packs eradicated, a lot of firms could close, and stay closed, which would increase unemployment and harm the coalition. However, with the private sector making increasing levels of noise about the problems pre-packs pose to creditors and competitors, it is doubtful these new watered-down proposals will be sufficient to silence the crowd.

30-SECOND BRIEFING
• In March last year the Insolvency Service launched a consultation into ‘improving the transparency of, and confidence in, pre-packaged sales in administration’
• The consultation asked respondents to consider four options designed to improve confidence and transparency in pre-pack sales, and a fifth ‘no change’ option
• The options were: to give statutory force to the disclosure requirements currently in SIP 16 and penalties for non-compliance; to restrict exit to compulsory liquidation following a pre-pack; to require a different insolvency practitioner to be appointed to the one that consulted with the company prior to it becoming insolvent; to require the approval of the court or creditors, or both, for all pre-pack business sales to connected parties
• In its summary of consultation responses, the Insolvency Service has identified a need for greater transparency and
confidence in pre-pack sales. However, it has dropped its original plans and announced a brace of new proposals
• These are: to require administrators to give creditors three days’ notice when attempting a pre-pack sale of a business; and to require SIP 16 reports, currently only sent to the Insolvency Service for review, to be included in the administrator’s report, which is available to anyone via Companies House