Pre-pack admins do get some criticisms, but they can be the best option in the right situations. The main criticisms are:
• The sale of the business is not put out to the open market.
Statement of Insolvency Practice 16 (SIP 16), which governs how an IP conducts a pre-pack, requires an IP to follow 7 principles of marketing, ensuring the widest possible coverage allowed by the circumstances of the case. Any failure to comply with the SIP requirements has to be explained to creditors. Because the IP needs to move quickly and discreetly to ensure that the value of the company is preserved for the benefit of creditors and staff, marketing may be restricted. Whilst the open market sometimes doesn’t get involved in the sales process, the pre-pack admin option does get the best outcome possible for creditors and employees in the right scenarios
• A lack of transparency for stakeholders.
Due to the necessary quick speed of the pre-pack, some creditors are only normally made aware of the pre-pack after it has been completed.
But…to improve this transparency issue, SIP 16 was introduced. In SIP 16, the Administrator is required to disclose to creditors the attempts that were made to market the company. If creditors are not happy with the statement that the IP makes under SIP 16, they can complain to the relevant regulators.
• It is often connected parties who are the buyer.
It is often the case that the only parties that are interested in buying the company are its directors or staff. Whilst some people may not like this, it is preferable to putting the company into liquidation – which will see all the staff losing their jobs and trade and expense creditors often getting no returns. Any connected party interested in purchasing the assets of the company is recommended to speak to the Pre-Pack Pool before the transaction is completed.