MPs call for review of pre packs

A report by the Business Select Committee into the work of the Insolvency Service (IS) has highlighted concerns about pre-pack administrations and says resource constraints are having an impact on insolvency investigations, reports Harris & Co accountancy services

Chairman of the Business Select Committee, Adrian Bailey MP, said:

‘Pre-pack administrations continue to cause concern. Greater transparency, higher levels of compliance, and a stricter regime of sanctions are needed.’

The committee said it wanted to see the IS amend its monitoring processes to include feedback to each insolvency practitioner and their regulatory body where SIP 16 reports have been judged to be non-compliant. It also recommended that the criteria by which SIP 16 reports are judged should be published alongside the guidance.

Trade body R3 said while it believes the proposed changes would improve SIP 16 compliance, there were additional measures it would like to see introduced, such as giving creditors the option to appoint an independent liquidator to examine a connected party sale.

The report says MPs are concerned that the IS’s investigatory and enforcement regime is ‘under resourced’ and that this sends the wrong message to delinquent directors. It also says BIS should provide additional funding if necessary to improve performance in this area.

Lee Manning, R3 president, said:

‘We strongly believe that disqualification rates should increase; 10 years ago 45% of “D1 reports” sent to the IS by insolvency practitioners led to a disqualification of a director, today this has dropped to just 21%.’

‘An increase in resource and efficiencies such as electronic reporting would see more ‘delinquent’ directors prosecuted, thereby protecting well-run UK businesses.’

Manning also supported the committee’s recommendation that there should be a government consultation on the continuation of supply to businesses in insolvency.

He said R3’s research showed that 14% of liquidations, equating to more than 2,000 businesses a year, could be avoided if suppliers continued to supply at the pre-insolvency terms.

There were a number of other recommendations including increasing the fee for individuals who opt for bankruptcy to £525, payable by instalments if necessary. It described the income model for the Official Receiver Service as ‘not fit for purpose’ and called for BIS to develop an alternative.

The committee also wanted to see the insolvency industry create common regulatory standards across the profession, with a single gateway for complaints, a simplified complaints systems and a common appeals process.

In his response, Manning said:

‘R3 supports the creation of common regulatory standards and a single gateway for complaints, providing this is done with further education of the public and creditors on the fee-setting regime for insolvency practitioners.’