According to an Insolvency Service report on the second half of 2009, 38% of the 497 pre-pack sales in the period were not fully compliant with the disclosure rules set out in SIP 16. Of those identified, 7% were deemed to constitute a serious breach of the SIP 16 guidelines warranting referral to the relevant authorising body.
The report added that it was "of serious concern that overall compliance did not improve in the latter part of 2009", despite the Insolvency Service having issued further guidance clarifying what needed to be disclosed and when.
In response to the report, business minister Ian Lucas said the government would consult on "tough new measures" to boost confidence in the pre-pack administration process, including the possibility of making the SIP 16 guidelines legally binding.
Since its inception in January last year, SIP 16 has been branded "ineffectual" due to the fact that compliance is not a statutory demand and so non-compliers go unpunished.
Lucas said: "Pre-packs are a good option for some companies when they get into difficulty as they can preserve value and jobs. But I'm very concerned that the appropriate information to justify the pre-pack is not always being provided."
According to the Insolvency Service, 29% of all administrations in 2009 resulted in pre-pack sales. However, it has admitted to concerns that it is not being sent SIP 16 data in all relevant cases meaning the true figure could be considerably higher.
Other measures being considered include making it impossible for the person advising on a pre-pack to become the administrator, making provision for automatic scrutiny of the directors' and administrators' actions by an independent body and requiring court or creditor sanction for deals involving connected parties.
However, the insolvency practitioners' trade association R3 claimed the report is misleading due to the disparity between the number of cases the Insolvency Service claimed are non-compliant and the number that were referred for further action.
President Peter Sargent said: "It is irresponsible reporting. Why didn't they refer a third of the cases to the regulators? The insolvency profession is unlikely to build confidence when a key part of the industry is engaging in scaremongering."
Insolvency Service to toughen up pre-pack compliance rules
The Insolvency Service has warned that SIP 16 could be passed into law, with penalties for non-compliance, after more than one-third of pre-pack deals were found to be in breach of the guidelines.
