9. Recommendations Key recommendation 1: Pre-pack Pool 9.1 On a voluntary basis, connected parties approach a before the sale ‘pre-pack pool’ and disclose details of the deal, for the pool member to opine on. 9.2 As described above, one of the main criticisms of pre-packs from many of those who have engaged with my review is that there is a lack of transparency with pre-pack deals. Some stakeholders said that, in some cases, secrecy is a strength of the process. 9.3 Perceptions are that connected cases are inherently less fair to creditors. This may be the case, even where the deal offered by the connected is the best one available in all the circumstances. Often, the connected party is the party most likely to make the best offer to the administrator and therefore the creditors because they see the business as their own livelihood. As shown by the characteristics of a pre-pack data at Annex E, these companies may have been running for a number of years and an affinity with the business on the part of those controlling it cannot be dismissed. However, the data gathered by the researchers show that in many cases those negative perceptions of connected party pre-packs are well-founded. Such cases are less likely to deliver a return to creditors and the new companies are more likely to fail within their first three years. Accordingly, this recommendation is aimed solely at connected cases. Unconnected sales are not proposed to be affected. 9.4 In devising this proposal, I was very concerned that there be no loopholes that the unscrupulous could use to circumvent the measure. Accordingly I also recommend including an anti-avoidance measure to complement the creation of the pool. Rather than just covering the traditional understanding of the term that is, a sale ‘pre-pack’ – arranged prior to the administration for execution at or shortly after the appointment of an administrator - I would like to broaden it for this measure. As a result, a connected party will be able to approach the pool, if they choose to, for any sale of all or part of the business in all circumstances before creditors are made aware of the sale.
9. Recommendations Key recommendation 1: Pre-pack Pool 9.1 On a voluntary basis, connected parties approach a ‘pre-pack pool’ before the sale and disclose details of the deal, for the pool member to opine on. 9.2 As described above, one of the main criticisms of pre-packs from many of those who have engaged with my review is that there is a lack of transparency with pre-pack deals. Some stakeholders said that, in some cases, secrecy is a strength of the process. 9.3 Perceptions are that connected cases are inherently less fair to creditors. This may be the case, even where the deal offered by the connected is the best one available in all the circumstances. Often, the connected party is the party most likely to make the best offer to the administrator and therefore the creditors because they see the business as their own livelihood. As shown by the characteristics of a pre-pack data at Annex E, these companies may have been running for a number of years and an affinity with the business on the part of those controlling it cannot be dismissed. However, the data gathered by the researchers show that in many cases those negative perceptions of connected party pre-packs are well-founded. Such cases are less likely to deliver a return to creditors and the new companies are more likely to fail within their first three years. Accordingly, this recommendation is aimed solely at connected cases. Unconnected sales are not proposed to be affected. 9.4 In devising this proposal, I was very concerned that there be no loopholes that the unscrupulous could use to circumvent the measure. Accordingly I also recommend including an anti-avoidance measure to complement the creation of the pool. Rather than just covering the traditional understanding of the term ‘pre-pack’ – that is, a sale arranged prior to the administration for execution at or shortly after the appointment of an administrator - I would like to broaden it for this measure. As a result, a connected party will be able to approach the pool, if they choose to, for any sale of all or part of the business in all circumstances before creditors are made aware of the sale.
Graham_review_report_-_June2014final.docx