Six months following the release of new disclosure standards for pre-pack deals, a report published yesterday [20 July 2009] by the Insolvency Service has found that 65% of reports filed under the new system were fully compliant with the increased standards.

The report said that 3% of the 572 cases reviewed were referred to the insolvency practitioners’ authorising bodies. “The key failing was a lack of sufficient detail for creditors to be able to properly assess the merits of the sale,” a statement accompanying the report said.

A pre-pack is defined as an arrangement under which the sale of all or part of a company’s business or assets is negotiated with a purchaser prior to the appointment of an administrator, and the administrator effects the sale immediately on, or shortly after, his or her appointment.

The report looks at whether the increased use of pre-packs has resulted in heightened incidence of directors’ misconduct, particularly in relation to the insolvent company’s debts being left unpaid whilst assets are sold on to a new company.

Deputy chief executive Graham Horne said in a statement: “On the information currently available, directors’ misconduct does not appear to be more prevalent in cases involving pre-packs than in other insolvencies.”

The service reported that other areas where reports fell down were:

• statements being issued to creditors late
• missing details of a valuation or marketing exercise
• omitting details of a connection between the insolvent company and the purchaser of its business. 

Horne continued: “There is still a fair way to go to ensure that creditors receive the information they need in a timely manner. We will be looking to strengthen SIP 16 to ensure it gives creditors what they want.”