ICAS welcomes outcome of consultation over pre-packs

ICAS, the professional body of Chartered Accountants, has welcomed a decision by UK Minister for Employment Relations, Consumer and Postal Affairs Edward Davey not to proceed with changes to requirements in pre-pack sales in insolvency.

In March of last year Davey launched a consultation in relation to the topic.

Following representations made by ICAS and other Recognised Professional Bodies (RPBs), he decided “the Government is not convinced that the benefit of new legislative controls presently outweighs the overall benefit to business of adhering to the moratorium on regulations affecting micro-business which is an important plank of this Government’s deregulatory agenda.”

In its response to the consultation, ICAS welcomed any measure that helped greater confidence and transparency into the pre-pack process, but questioned the proposal to introduce a three-day notice period.

“What must be ensured is that the flexibility and speedy route for rescue that a pre-pack currently offers is not lost through the Government’s proposal to introduce a three-day notice period for pre-pack sales to connected parties,” said Ann Condick, Director of Insolvency at ICAS.

“The primary reason that a pre-pack is used in many cases is that the business is likely to quickly decrease in value post an insolvency appointment, with little or no funds to trade or market the business for sale.

“Three days is a long time in business, and a company could risk losing the sale or losing key staff and customers.”

The results of an ICAS survey of 14 leading IP member firms which handle Administration appointments show that for the period 2007 to 2010 these firms had handled 728 administration appointments.

Of this number 43 were cases in which the businesses had been sold through pre-packs. Out of a total of 7043 jobs saved, 3012 were as a result of pre-packs, representing 42% of the total.

Responding to Davey’s decision, Condick said: “This is a welcome development. Businesses are feeling the effects of a tough trading climate and, handled correctly, pre-pack sales are a useful part of the rescue culture.”

In his decision, Davey said that the Government accepted that pre-pack sales can offer a flexible and speedy means of business rescue and when used appropriately can be the best way of maximising returns for creditors.

“It is apparent that concerns remain about the use of pre-pack sales, particularly where the assets are sold to a connected party – something that is often referred to as ‘phoenix-ism’,” said Davey.

In recent weeks pre-pack administrations have been used in the cases of high-profile retailers Peacocks, Blacks and Bonmarche.