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Government misreporting on pre-packs undermines confidence, says insolvency trade body

Insolvency trade body R3 challenges the Insolvency Service’s reporting on pre-pack compliance rates, claiming it is issuing misleading figures. The Insolvency Service claims that more than a third of cases in the last six months were deemed to be non-compliant when in fact just 7% were referred to the Regulatory Bodies (RPBs) for possible sanction.

R3, the insolvency trade body’s President Peter Sargent commented:

“It is irresponsible reporting by the Insolvency Service to claim that over a third of cases were judged to be non-compliant when as few as 7% were considered suitable for potential disciplinary action. Why didn’t they refer a third of the cases to the regulators? The insolvency profession is unlikely to ‘build confidence’ in pre-packs when a key part of the insolvency industry is engaging in scaremongering.

“We appreciate that there is no room for complacency. We call on the Insolvency Service to assist insolvency practitioners by providing greater clarity on what they expect from a SIP 16 report and to work with IPs to report fairly on pre-packs.

“Despite numerous requests from practitioners there are still no ‘pro-forma’ examples of SIP 16 reports for insolvency practitioners to follow. Moving forward, the Insolvency Service should report with greater transparency on compliance rates and avoid misleading language that reinforces negative preconceptions,” concluded Peter Sargent.

The Insolvency Service’s own report states there have been ‘significant improvements’ in the ‘quality and timeliness of information’ which is not reflected in their press release. SIP 16 has only being running for a year, with clear guidance only coming from the Insolvency Service at the end of October 2009.

“Two months is not long enough, so let’s give this system a proper chance,” added Peter Sargent. “We welcome a consultation on pre-packs in order to engage with the Insolvency Service and work together to address concerns.”

R3’s research shows the clear benefits of pre-packs in saving jobs and delivering greater returns to secured and unsecured creditors in an insolvency situation. R3 is concerned these benefits will get lost in the noise over pre-packs during a time when the economy is still fragile. Peter Sargent concluded:

“During this recession, when a business is on the brink of collapse, options are limited and a pre-pack can be the only solution to keep at least part of the business alive and avoid liquidation. If the Government agency continues to discredit pre-packs, jobs and businesses will suffer by not having this rescue option available.”

R3’s recommendations to the Insolvency Service (see briefing for more detail):

  1. The Insolvency Service should use appropriate terminology when reporting on SIP 16 to avoid encouraging misconceptions over compliance levels.

  2. The Insolvency Service should provide more detail on the level of competence and training of officials checking SIP 16 reports, in order to ensure they are sufficiently qualified to do the job.

  3. The Insolvency Service should actively support the profession by making available information that would help practitioners comply better with SIP 16 - for example, the number of reports that are found non compliant under each of the categories identified the SIP.

  4. Breaches of SIP 16 should be treated with appropriate severity.

  5. Confidence should be encouraged through increased Insolvency Service enforcement activity in other areas, such as disqualification of blameworthy or incompetent directors.

R3 Press Office

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.