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The Analysis News & Opinions


Connected pre-pack sales under review


The government has announced that it will undertake an assessment of the impact of the voluntary industry measures, introduced in November 2015, on connected party pre-pack sales in administration, amidst appeals from the industry to maintain existing powers. The industry measures arose from the


recommendations of the 2014 independent Graham Review, which, the Insolvency Service said, had found that pre-pack sales were a useful business-rescue tool, but that there was evidence of less successful outcomes where the pre-pack sale was to a connected party. As well as industry reforms, the Small


Business, Enterprise and Employment Act 2015 created a power for government to make regulations to impose conditions on property sales to connected parties in administration (including via a pre-pack). This power expires in May 2020. The assessment will look at the impact of


reforms on all connected-party sales in administration and will help to inform decisions on whether further regulation is needed prior to the expiration of the regulation-making power. Duncan Swift, deputy vice president of trade association R3,


must have the confidence of all stakeholders. The 2014 Graham Reforms were a welcome attempt to boost that confidence. “Two years on from their introduction, it


is clear that some elements of the Graham Reforms have worked better than others: the new rules of valuations and marketing for potentially pre-packed businesses seem to have gone down well.” He added that reforms might be


said: “The


government’s review is expected and is a good opportunity to examine the role pre-pack administrations play in the UK’s business-rescue landscape. “At the end of this review, the government


must decide whether or not to exercise its power to ban any sales from any administration – not just pre-packs – to a connected party. The insolvency and restructuring profession understands the frustrations that exist with pre-packs, but to lose the ability to make a sale to a connected party would have a serious impact on business rescue in the UK. However, this does not mean there is no room for continued improvement on pre-packs. “Pre-packs are a valuable business and


job-rescue tool, and are beneficial to creditors, but, to work properly, pre-packs


January 2018


considered for the Pre-pack Pool, where the volume of referrals by connected-party purchasers had been disappointing. The government should look at making referral to the pool mandatory for connected-party purchasers, while insolvency practitioners should be allowed to provide information to the pool to make sure reviewers had the complete picture when assessing a pre- pack deal. He insisted: “There is value in the pool


being used to provide extra assurance to creditors beyond the assurance which is already provided by a licensed insolvency practitioner. But the pool has to be used for it to be useful. “Without pre-packs, it would be harder to


rescue businesses and more jobs would be put at risk. It must be remembered that pre-packs may only be used when a company is insolvent and a pre-pack would get the best deal for creditors. Without pre-packs, creditors would lose money.”


www.CCRMagazine.co.uk Opinion


Fewer Scottish companies reporting signs of growth


The percentage of Scottish companies which report that they are benefiting from at least one sign of growth may have taken a tumble in recent months. Research estimates that the proportion of


companies in Scotland, reporting one or more signs of growth, fell to 54% in September 2017, down from 75% in April and 59% in September 2016. Of the five signs of growth we monitor,


four of them experienced a drop compared with April of this year. At the same time, however, there may be


some good news as the proportion of firms reporting one or more signs of distress fell to 16%, compared with 30% in both April of this year and September 2016. Only around 8% of Scottish companies


surveyed said that they had seen a reduction in sales volumes, while around 7% said that they were owed payment on invoices over 30 days past due. As an illustration of the uncertainty, 38%


of Scottish firms indicated they are more optimistic about the economy in general than they were three months ago, while 44% said they are more pessimistic. Yet, when asked about the prospects for their own firms, business owners appeared to be more upbeat, with around 48% saying they expected activity to increase, and only about 3% said they expected it to decrease. It appears a lot of firms may be treading


water: they are able to tick along in the near term, thanks to factors such as continued access to business finance, a lack of upward pressure on wages, or demand for exports due to the diminished value of the Pound. There is a lot of uncertainty out there, and


lots of businesses will be holding back on making decisions about growth and investment. If growth really tails off, it will not be too long before distress levels start to increase.


Tim Cooper Chair, R3 in Scotland


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