Vol 13 (2016) - Issue 3

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The End of Pre-packs? An Analysis of the Legal Landscape in which Pre-packs Operate and the Failures of Graham’s Proposals – Part Two

This is part two of a two-part series which contests the recent reforms introduced by Teresa Graham to prepacks. In the first part of this article Sandra Frisby’s findings and the reforms which stemmed from them were outlined. It was argued that SIP 16 was a reasonable and balanced measure to address stakeholders’ concerns. This part begins with section 4 by continuing the assessment of SIP 16 to explain why it failed to satisfy the involved market participants’ concerns. It then looks at the measures proposed by Ed Davey in 2011, what they sought out to fix and compares these measures with the ones stemming from the Frisby reports. In addition, it also evaluates why they were not implemented. Section 5 examines the Graham report, the problems it identified with pre-packs, what was suggested to address these and why they are made in error. The previous findings from section 3 and 4 will then be taken into account to provide reasons for alternative regulation. Section 6 concludes.

4 Ed Davey enters the arena
4.1 Sparks are flying
The goal with SIP16 was to increase transparency in pre-packs and consequently earn the trust of the public and creditors. This was a welcomed measure by the profession who saw the opportunity to erase the conception that pre-packs were inflicting additional losses to creditors when in fact it was the insolvency of the company. However, along with SIP16 and the mandatory reporting also came comprehensive statistics and comments on how well the market responded to the new requirements set out. The Insolvency Service published their first compliance report in June 2009 and in it they recognised that there were continued concerns surrounding pre-packs. These concerns stemmed out of creditors’ inability to influence a prepack and the lack of transparency in a pre-pack, the result of which was continued unease when a pre-pack involved a connected party. Additionally, on a parliamentary level it was argued that phoenixism was still prejudicing unsecured creditors. It would thus seem that Frisby’s findings had gone unnoticed and that SIP16 failed to calm the market. Nevertheless, it is necessary to analyse whether the concerns identified by the Insolvency Service and members of parliament can be substantiated.