Pre pack review

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The Insolvency Service (IS) has published an independent review of insolvency practitioners’ (IP) fees and launched a review into the use of pre-pack administrations as part of moves by the Department for Business, Innovation and Skills (BIS) to improve corporate transparency according to Harris & Co chartered accountants Northampton who are small business accountants who specialise in providing accountancy services to that sector.

The report on IP fees, which was carried out by Professor Elaine Kempson of Bristol University, is based on surveys and interviews with IPs and creditors. It concludes that these ‘clearly show that secured creditors and some other larger creditors exercise close control over fees when they are involved in an insolvency (and larger corporate insolvencies in particular). In contrast, unsecured creditors seem to exercise (and to be able to exercise) very little control at all, particularly in corporate insolvencies.’

The review outlines recommendations for steps to improve trust in IPs during the insolvency process, including providing greater information for unsecured creditors to assess fees and simplifying the oversight process by unsecured creditors.

The government has said it will respond to the report later this year. In a statement, the insolvency industry body R3 said: ‘We welcome the conclusions from Professor Kempson’s review and agree that at the heart of the fees debate is the issue of creditor engagement. As Professor Kempson has found, creditors can have considerable influence on fees when they engage in the process. The challenge for government and the profession is to make it easier for this engagement to take place.’

Vernon Soare, ICAEW executive director, said:

‘An increase in creditor understanding is critical to build engagement and is already to happening. Initiatives such as the ICAEW’s Insolvency Quality Forum are helping to break down these barriers and we look forward to working with other stakeholders to help increase creditor participation.’

The IS has also announced a review into the use of pre-pack administrations which will look at whether pre-packs encourage growth and employment, provide value for creditors and how creditor confidence in the procedure can be improved. It will specifically consider whether such arrangements disadvantage unsecured creditors. The review will be led by Teresa Graham, currently chair of the administrative burdens advisory board of HMRC, and will report back early next year.

The proposals for changes to the insolvency regime form part of a discussion paper from BIS entitled Transparency and Trust which is open for comment until 16 September 2013.

Amongst other options under consideration are the creation of a central registry of information on companies’ beneficial ownership maintained by Companies House; the abolition of bearer shares; whether nominee directors should be required to disclose their status to Companies House; and the abolition of corporate directors.

The paper also looks at whether bank directors’ duties need to be changed; giving courts the power to make compensation awards against a director when making a disqualification order and allowing liquidators to sell or assign fraudulent trading actions to creditors; offering directors education at the end of their disqualification; changing laws to prevent disqualified overseas directors from being a director of a UK company; and extending the time limit for when disqualification action must be taken against the directors of an insolvent company.

The discussion paper is on the BIS website.

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