At the request of Vince Cable’s business department, Teresa Graham carried out an independent review of pre-pack administrations, published in June 2014. The review was tasked with looking at the long-term impact of pre-packs, whether they provide best value to creditors as a whole, their usefulness in business rescue generally, the potential to cause detriment to particular groups of creditors and whether there are particular practices associated with pre-packs that cause harm.

In general the review concluded that pre-packs are a useful tool or preserving value in certain circumstances but that certain aspects of the process could be improved. Specifically, six recommendations are made:

  1. That a pool of independent experts known as the “Pool” be established and that connected parties approach the pool with details of the pre-pack deal for a member to opine on
  2. On a voluntary basis the connected party complete a viability review indicating how the new business will survive the first 12 months post the pre-pack and what it will do differently so as not to fail again
  3. That a new version of Statement of Insolvency Practice 16 (SIP 16) be adopted incorporating the recommendations of the Graham Report
  4. That marketing of a business before a pre-pack be improved with a wider reach for a longer period and with much greater disclosure of the marketing strategy
  5. Improvements to the disclosure of valuations and a requirement that valuers carry professional indemnity insurance
  6. That the monitoring if SIP 16 statements be moved from the Insolvency Service the various Recognised Professional Bodies.

You can download a copy of the full report here:

BM&T welcomes the Graham report as a well thought through response to a number of public concerns about pre-packs. Recommendations 3, 5 and 6 are largely procedural and it is 1,2  and 4 that have the potential to change the way pre-packs are carried out.

We believe the pool is a good idea although its success will be dependent on the skills and experience of the pool members and on the quality of the information supplied to them.

The viability review is a welcome recommendation to force businesses to consider what they will do differently to avoid a repeat failure. It should also force businesses to consider their financing needs post a pre-pack when management is often surprised to find that trade credit is not as available as they expected and that HMRC may require deposits etc. Recognising that it will not be business as usual and what has to change is important for the ultimate survival of the business.

Lastly the marketing proposals are very welcome and should go a long way to improving transparency and ensuring that a fair price is obtained for the business.

We remain concerned that in a wider context, far too many businesses find themselves guided down the route of a formal insolvency process with little or no consideration being given to consensual alternatives that preserve greater value. Indeed, the Graham report alludes to the commoditisation of insolvency services in para 8.8 but concludes the issue is outside the scope of the review.

The devil will as ever be in the detail and it is to be hoped the reports recommendations are implemented in a positive fashion and in the spirit intended rather than being watered down wherever possible. Time will tell on that one but lets hope so.


David Bryan – Principal, BM&T
4th July 2014

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On 12th March 2014, the European Commission published a proposal that all member countries should reform their insolvency laws to create a genuine rescue culture. Key points from the paper are:

  • 200,000 businesses face insolvency every year across the EU and 1.7m people lose their jobs
  • Insolvency frameworks in many EU countries channel viable enterprises in financial difficulty towards liquidation
  • Much better to keep viable businesses alive, safeguard jobs and improve the recovery for creditors
  • Need to distinguish between honest and dishonest entrepreneurs and give the honest ones a second chance
  • Need to create an environment where businesses seek help at an earlier stage without lengthy and costly procedures
  • Allow businesses to restructure without formal court proceedings
  • Give businesses a temporary stay of four months (extendable to a max 12) to adopt a restructuring plan during which creditors cannot launch enforcement proceedings
  • Facilitate the adoption of such plans, presumably by thresholds for majority approval that prevent hold-outs
  • Shorten the period for an honest bankrupt to be discharged to a maximum three years

The proposal asks member states to put measures in place to achieve this within one year. See the full proposal here:

Realistically, the chances of all EU countries achieving this in a year are pretty much zero. In the UK we have a general election in 2015 so no chance before then. There is then the question of exactly what our membership of the EU will look like with a referendum possibly in 2017.

But that should not detract from the merits of this proposal. We agree with everything it says about the shortcomings of the current rescue culture in the UK. The value destruction and collateral damage of insolvencies is huge and formalising genuine rescue procedures as suggested would be a big step forward. The UK’s insolvency laws haven’t changed in over 10 years. Other countries in Europe have introduced laws as suggested by this proposal and it’s time for the UK to catch up. This could be a major step forward for a genuine business rescue culture.

Inevitably the devil will be in the detail. France, Italy and Spain have all introduced such laws and had to go back and revisit them quite quickly. The UK can learn from those mistakes and should have a better chance of getting it right first time.

The UK also needs to ensure such rescue activity is not hijacked by the insolvency profession. They are the people least suited to help businesses through such a process. Far better to have experienced turnaround professionals involved. As it becomes established around Europe the EACTP qualification should be the recognised professional standard for those that can genuinely help businesses to survive and thrive.

All we need now is for the government of the day to pick up the baton and run with it. Hopefully the business community will lobby for that to happen.

David Bryan – Principal, BM&T
24th March 2014


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