1) The document discusses recent trends in UK insolvency procedures, which have generally been declining since 2013. 2) It then focuses on pre-pack administrations, which have been controversial due to concerns about lack of transparency and maximizing creditor value. 3) The independent review of pre-packs is summarized, which found some economic benefits but still issues around transparency, particularly for phoenix pre-packs. It recommends a voluntary pre-pack pool for scrutiny and viability reviews.

1. Pre-packs and the insolvency
regime – an update
DR SANDRA FRI SBY
AS SOCIATE PROFES SOR AND READER IN
COMPANY AND COMMERCIAL LAW
UNIVERS ITY OF NOT TINGHAM
CCR- INTERACT IVE 201 4 , 7 OCTOBER, LONDON

2. Insolvency Procedures: 1987 - 2013
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Insolvency Procedures: 1987 - Present
Compulsory liquidation Creditors Voluntary Liquidation Administration
Receivership Company Voluntary Arrangement

3. And 2014?
 Figures for first two quarters of the year available
 Compulsory liquidations and creditors’ voluntary liquidations
both down in numbers from the same period on 2013
 Administrations down from same period in 2013
 Receiverships down from same period in 2013
 CVAs down from same period in 2013
 So insolvency numbers appear to be falling!

4. Why this matters to credit professionals
 Formal insolvency procedures represent the last
chance saloon for recovery of a debt
 And, in most cases, the only mechanism available
 Liquidations and administrations and some CVAs legally
prohibit many forms of individual enforcement action
 Therefore the conduct of the procedure is important
 Actions of presiding insolvency practitioner may affect the
chances and degree of recovery
 Dealing with retention of title claims
 Sale of assets and/or business and maximisation of realisations
 Providing information on conduct of procedure and potential
outcomes for all classes of creditor

5. Areas of interest
 Pre-packs!
 Outcome and recommendations of independent review
 Retention of title claims
 Developments from the courts
 Transparency and Trust
 Outcomes of BIS consultation

6. The pre-pack back story
 What is a pre-pack?
 Company in financial difficulties
 Insolvency practitioner, prior to formal appointment,
negotiates sale of business of the company
 Practitioner appointed (usually as administrator) and
immediately executes sale
 Why the controversy?
 The ‘phoenix’ pre-pack (sale to existing owner/managers)
 Do pre-packs maximise value?
 Especially for unsecured creditors
 Lack of transparency and accountability of practitioner

7. From 2008(ish) to present
 Considerable press coverage following high profile pre-packs
 Whittards of Chelsea, The Officers Club, USC and Mosaic
 Courts, however, have consistently ‘sanctioned’ the
strategy
 Re DKLL Solicitors LLP [2007], Re Kayley Vending Ltd [2009], Re
Johnson Machine and Tool Co Ltd [2010]
 SIP 16 (January 2009, amended November 2013)
addressing transparency and accountability
 And from the Government…
 Legislative intervention shelved in 2012
 Independent review announced in 2013

8. The independent review into pre-packs
 Carried out by Theresa Graham, as part of the Transparency
and Trust programme
 Reported in June 2014
 Main findings of the review
 Job preservation (within pre-packaged business) is a clear advantage of
the strategy
 Upstream costs of insolvency are significantly reduced by pre-packing
 Some economic benefits accrue to UK plc through pre-packs
 Transparency still a problem, leading to unsecured creditor feelings of
distrust and disenfranchisement
 Particularly in case of phoenix pre-packs
 Marketing the business needs to be improved to ensure optimisation of
value for creditors
 Long-term viability of the business is not required to be considered
 Leading to recidivism, most notably amongst phoenix pre-packs

9. The pre-pack recommendations
 Light touch approach, so no legally binding developments
 The establishment of a ‘pre-pack pool’
 For phoenix pre-packs, voluntary submission of the deal by proposed
director of Newco to the pool before it is executed
 Pool to be comprised of ‘experienced business people’ who will comment on
the propriety or otherwise of the deal
 Pool’s comments to be included in SIP 16 report sent out to creditors
 The voluntary viability review
 To be drawn up by proposed director of Newco, again in phoenix pre-packs,
explaining how it is proposed that Newco survives for at least 12
months after the statement
 Where viability review is drawn up, this will be included in SIP 16 report, and
where it is not, the administrator providing the SIP 16 statement will explain
that the review was requested but not completed
 Recommendations as to marketing and valuation

10. The devil in the detail?
 As yet, no news on the establishment of the pre-pack pool, although
Government has asked for nominations
 Concerns expressed over how quickly and efficiently the procedure will work in
practice
 SIP 16 still has to be ‘beefed up’ to accommodate recommendations
 Unclear as to likely level of ‘take-up’ of submission to the pool, or
completion of viability review
 Or, indeed, of how insolvency practitioners will approach cases of non-submission
or non-completion
 How will this be monitored?
 Government has reserved power to legislate in Small Business Enterprise and
Employment Bill (currently before Parliament)
 Will the ‘new’ regime increase transparency and accountability and
improve confidence?
 Over to you!!

11. Caveat Venditor! Retention of title
 Blue Monkey Gaming v Hudson [2014]
 The facts
 Slot machines supplied on retention of title terms to the Agora
Group
 Agora enters into administration and BMG’s slot machines are
sold during the course of the administration
 BMG sues the administrators in the tort of conversion (wrongful
sale of its slot machines)
 The issue – are administrators under an obligation
to identify assets subject to retention of title clauses?
 Answer – no! The onus is on the owner of the property to a)
unequivocally require delivery up of the property; b) compile
inventory of its own property to substantiate its claim.

12. CableVision!
 Transparency and Trust: Enhancing the transparency
of UK company ownership and increasing trust in UK
business (BIS, July 2013)
 Bolstering the potential for wrongful and fraudulent trading actions
 Permitting assignment of actions (to creditors!)
 But simply ‘reverses’ some of the sillier aspects of the Jackson reforms
 Compensatory awards against disqualified directors
 But disqualification is the trigger… and numbers have fallen
consistently, despite an increase in the reporting of misconduct
 BIS, April 2014 – both these initiatives will be taken
forward “when parliamentary time allows”…