CM July and August 2018

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ASK THE EXPERTS Shallow Pool Is the Pre-Pack Pool delivering for creditors and will it exist in the future? AUTHOR – Stuart Hopewell HAVING recently published the Pre-Pack Pool Annual report on our website (prepackpool. co.uk), as a co-director of Pre-Pack Pool Limited, effectively The Pools’ ‘directorate’, I have to express some concern over its future and that of Pre-Packs in general. Following on from a slow start in 2016 the 2017 numbers were less than encouraging. Of 1,289 Administrations, 356 were Pre-Packs and 203 of those were to connected parties. Note only connected party Pre-Packs are of concern to The Pre-Pack Pool (The Pool). However, only 23 of these were referred to The Pool for analysis and opinion by our panel of experts, which at just 11 percent is significantly lower than the 2017 ratio of 28 percent. As of 1 June, only a further eight cases had been referred in the first five months of 2018). So, my concerns are: is the Pool fulfilling its primary purpose ‘Giving an independent opinion on Pre-Pack sales to connected parties?’ Does The Pool give ‘comfort’ to creditors and lenders? Has it had any impact on the Pre-Pack ‘market?’ Is voluntary referral effective? Crucially, are creditors engaged or even remotely interested in the process? I firmly believe that the Pool fulfils its primary purpose when referrals are made. However, the low referral rate indicates that either Connected Party purchasers don’t feel the need to refer, or that non-referral doesn’t in anyway restrain the new entity from operating with new lines of credit and supply. (There is also anecdotal evidence that Insolvency Practitioners aren’t exactly encouraging referral.) Of course, the whole system of referral is entirely voluntary, and some debate has started in favour of compulsion. In fact, The Insolvency Service has begun its review into the impact of the SIP16 reforms (of which The Pool is but one). Options include compulsion and even the banning of Pre-Packs (the so called ‘sunset clause’ due for final consideration by May 2020). Being conflicted as a director of Pre-Pack Pool Limited I shall remain neutral on this point, but I am sure stakeholders will be asked to give their opinions at some point in the future. As for creditors generally, the Pool can only give comfort if the stakeholders actually read the opinions given. Whilst these are quite prescriptive in format, either a positive outcome, a ‘qualified positive’ (usually due to minor shortcomings in evidence) or an outright negative opinion, they do give an indication as to the reasonableness of the transaction. Reading the administrator’s proposals in detail will usually give a fair steer into how the ‘deal’ was put together and referral to the Pool (or perhaps more importantly a lack of referral), should go some way to guiding the suppliers/creditors as to the commerciality of the transaction. Equally, unless creditors actively encourage referral (perhaps by indicating favourable terms if one is made) then there is no incentive for a potential purchaser to approach the Pool. Often creditors complain of a ‘fait accompli’ with regard to Pre-Packs, but they should be aware that Insolvency Practitioners have a duty of care to all creditors and will seek to reassure them that the Pre-Pack was the right thing to do. The Pool was set up to further reassure creditors on this point. Unless creditors actually read the proposals and subsequent reports all such reassurance could be seen as a waste of time and effort (not to mention expense!) In terms of the market it could be that the number of Pre-Packs overall has reduced as a result of their vision of SIP16 in general. There has been a 50 percent reduction in such cases since 2011 from 723 to 356. Connected party Pre- Packs have reduced from 79 percent of the total to 57 percent in the same period. So perhaps Pre-Packs are no longer ‘fashionable’. As credit managers in the retail sector will know, recently the trend has been for Company Voluntary Arrangements (CVAs) to make a comeback, though this seems increasingly to be a way of ensuring rent reductions rather than simply an insolvency process per se. So, are Pre-Packs or the Pool itself a cause for concern? While I accept that the Pre-Pack is here to stay and that the referral process remains voluntary, unless more is done to direct ‘traffic’ to the Pool its future must be in doubt. As an ex credit manager, I believe the creditor community can do more to support the system, which let’s not forget is there to ‘protect’ them. So, next time you hear that a customer is thinking of ‘doing a Pre-Pack’ ask yourself, has it been referred to the Pool, and if not why not? Stuart Hopewell is a Director of the Pre-Pack Pool. The Recognised Standard / www.cicm.com / July/August 2018 / PAGE 14
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