CM October 2020

INSOLVENCY SPECIAL
AUTHOR – David Kerr FCICM
within 24 hours. It has reviewed 100+ cases
since its inception and most of its opinions
have concluded that the pre-pack deals were
not unreasonable in the circumstances –
sometimes going further, as in the recently
reported Everest case where the pool member
commented that the pre-pack was the best
course of action for customers and staff (hmm
– but what about creditors, do I hear you ask?).
Critics might rightly question what
happens in the 90 percent of cases that are not
referred to the PPP. How many of those deals
would pass the test of independent scrutiny?
We simply don’t know; though we do know
from IPs’ statements that there is a good level
of compliance generally, and that regulators
are looking not only at compliance but also at
the soundness of the transaction as a whole
(up to a point). And we should remember that
a pre-pack may be saving a business and jobs
when that business might otherwise cease
trading with probably a worse outcome for
creditors.
INDEPENDENT OPINION
As creditors, do you value PPP opinions, and
act upon them in decisions about future
trade? There’s little evidence for that. Are
creditors making as much noise about prepacks
now as five years ago? [A test Graham
set as a barometer for the success or otherwise
of the voluntary measures]. Perhaps not. The
number of cases remains modest, though there
has been a 40 percent increase in pre-packs
since 2015. But as the recent parliamentary
debate and some press coverage illustrates,
an aroma of doubt lingers – unhealthily so for
the profession and its reputation.
Perhaps PPP referrals could be made
compulsory to ‘prove’ the reasonableness of
the 90 percent currently unseen by the PPP?
Would that knock all the negative arguments
on the head once and for all? Particularly if
the IP were invited to submit information to
the PPP to ensure that it had all the necessary
facts? PPP comfortably has the capacity to
cope with 200+ referrals per annum.
Arguably the profession needs PPP to
succeed and be seen to do so, as it has a
symbolic presence as an embodiment of
collaboration and the profession’s willingness
and ability to respond to concerns – and an
importance in that regard that should not be
lost on those who wish to maintain the present
professional body/peer-led regulation regime
that is under threat from the next big Service
review on possible measures for a new single
regulator, and on which the Government is
due to publish its proposals later this year.
Can the profession afford to see the PPP fail?
A last thought on the PPP – we should not
underestimate the independence it provides in
the opinions given. Pool members are engaged
on a rota basis that is largely automated and
free of manipulation or undue influence
– least of all by the prospective purchaser;
yes, the purchaser pays and submits the
information (though at present the IP can,
and sometimes does, submit information as
well) – but the purchaser doesn’t choose the
reviewer and cannot easily discard or ignore
the opinion provided. As a creditor, wouldn’t
you value that independence?
LEGISLATIVE DEVELOPMENTS
There are of course other regulatory levers
besides the PPP, not least the regulatory
requirements alluded to above (principally
around transparency/disclosure) in Statement
of Insolvency Practice 16 (which sets out what
should be disclosed to all creditors and is a
summary of the transaction, why it was in
creditors’ best interests and the best option
available) and the regulators’ reviews of those
statements – though it should be noted that
not all the Recognised Professional Bodies
(RPBs) have been reviewing all of them – one
opting instead for sample reviews (less than
one in eight).
This and other figures relating to the
operations of the RPBs have been published
recently in the Service’s annual report on IP
regulation. Always a riveting read of course,
it highlights everything from the number of
inspection visits to statistics on complaints
received, and in both cases the actions taken.
It may not contain many startling facts, but
it provides transparency about the levels of
activity in the regulatory arena.
A review of some SIPs has been underway
over the summer, and CICM has contributed
its comments with input from the Technical
Committee, and more recently there have
been some developments with the Breathing
Space proposals for individuals in financial
difficulty. It was a little surprising, perhaps,
that these did not form part of the CIGA relief,
with maybe an accelerated timetable for the
introduction of these new provisions, but at
least they are on course for implementation
in May next year. Draft regulations have been
published outlining how this will work.
Remember that the 60-day breathing space
period, while individuals with problem debts
are receiving advice, will see enforcement
action from creditors halted and interest
frozen. And with redundancies following the
withdrawal of furlough, and some directors
struggling to deal with personal guarantees
on company debts, expect to see the demand
for personal debt solutions rising. No time for
that cigar!
David Kerr FCICM is an insolvency
practitioner with extensive regulatory
experience and a member of the CICM
Technical Committee.
Advancing the credit profession / www.cicm.com / October 2020 / PAGE 11