An updated Statement of Insolvency Practice (SIP) relating to pre-packaged sales in administrations has been issued by the Joint Insolvency Committee, effective from 1 November 2013. The new SIP aims to provide greater clarity for creditors, with insolvency practitioners (IPs) having to provide earlier notification of the pre-packaged sale and more detail as to the circumstances surrounding, and terms of, the sale transaction.
Many of the changes implemented have already been seen in the Insolvency Service’s “Dear IP” guidance in 2009, but these points are now contained within the updated SIP itself, and the Dear IP guidance will be consequently withdrawn.
- The administrator should provide creditors with a detailed narrative explanation and justification of the sale to demonstrate that they have acted with due regard for the interests of the creditors. Such information should be provided with the first notification to creditors and in any event within seven calendar days of the sale (the earlier Dear IP guidance suggested a 14-day time limit) and should also be filed at Companies House with the administrator’s statement of proposals.
- The information disclosure requirements are more extensive and more structured, categorised into the different elements of the transaction, with much greater emphasis placed on provision of information relating to valuation. The administrator should also now include the following information to creditors:
- Pre-appointment, the name of the source, and the date, of the IP’s initial introduction and the outcome of any consultation with major creditors;
- Details of charges;
- Details of any previous sales of the business or assets by an IP within the previous 24 months (or longer) and whether the administrator or his/her firm was involved;
- The outcome of marketing activities, or an explanation as to why no marketing was undertaken;
- More comprehensive information relating to the valuers, valuations obtained and the rationale behind the valuations; and
- The sale consideration, categorised by asset valuation and split between realisations from fixed and floating charges.
The new SIP sets out the information that insolvency practitioners are required to provide in a more structured manner, which may assist IPs to complete their returns more effectively. Creditors are likely to remain disappointed that this information will only become available after the event, but there is clear pressure between creditors’ desire to receive information before a deal is done, and the importance of preserving the value of a sale as a going concern in order to achieve the best outcome following an insolvency.
Client Alert 2013-298