Last week, it was reported that law firm Dewey & LeBoeuf had said unsecured creditors that hold 10% or more of the company’s outstanding debts should be given access to discussions between management, the insolvency practitioner and the charge holder before the pre-pack deal is completed.
Peter Sharp, a partner at the firm, said: An unsecured creditor with a significant interest in the insolvency, has a legitimate expectation that its rights will be fully taken into account… but may find itself disenfranchised.
James Bowker, director at Aon Trade Credit, said that, while the proposals are encouraging, they only support the larger creditors.
It’s an excellent step forward, but really misses the issue. Smaller creditors also need support and it seems that is unlikely to change unless there is a change in legislation, he said.
Paper merchants would be among those to benefit from the suggested changes in the legislation as their debts frequently account for more than 10% of unsecured debt.
Tim Bowler, director of The National Association of Paper Merchants (NAPM), said: Although the idea of involving unsecured creditors in talks is a positive one, the problem with pre-packs is the speed of the process. This often goes against unsecured creditors.
In a report written prior to the publication of SIP 16, Sharp and his colleague Nick Greenwood, argued for disclosures similar to those contained in the guidelines.
Sharp told PrintWeek that SIP 16, which sets out a best practice for Insolvency Practitioners including the disclosure of any ties the company had with former directors and rival bids, was a big step forward.
PRE-PACK PROPOSALS
Unsecured creditors that hold more than 10% of outstanding debts should:
· Be given access to pre-party negotiations
· Be party to discussions between management, the insolvency practitioner and the charge holder
Arguments against:
· The pre-pack process completes too quickly for such creditors to be fully included in talks
· It is not viable for smaller creditors to be party to negotiations unless there is a change in legislation
