SIP 16 (Statement of Insolvency Practice 16) addresses the main criticism of the Pre Pack Solution. That is that it may not give adequate protection to the failing company’s creditors.
- What is SIP 16?
- The SIP 16 Viability Statement
- The Pre Pack Pool
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What is SIP 16?
Statements of Insolvency Practice (commonly known as SIPs) provide Insolvency Practitioners with professional guidelines regarding their responsibilities. They are issued by the Joint Insolvency Committee. They are not legal rules but are regarded as best practice. As such they are normally adhered to.
The objective of SIP 16 is to ensure that when Pre Pack is used the interests of the creditors are not ignored. It requires Insolvency Practitioners to provide an explanation and justification for the use of the solution including the following information:
1. The activities conducted by the company and/or the liquidator to market the assets of the business.
2. The valuations of the business or of the underlying assets obtained by the liquidator.
3. Why the Insolvency Practitioner considered a pre-pack would represent the best outcome for creditors.
4. The identity of the purchaser of the old company assets and the price paid.
5. Any connections that the new directors have with the insolvent company.
The SIP 16 Viability Statement
In November 2015 a revision of SIP 16 was introduced by the Joint Insolvency Committee. This provides further guidance to Insolvency Practitioners on implementing Pre Packs. One of the main changes is increased clarity in relation to the SIP 16 Viability Statement. This must now include a written justification of why the Pre Pack was appropriate and that the IP acted with due regard to creditors’ interests.
The statement must also confirm that any valuations of assets have been conducted by an appropriate independent valuer and/or advisor with adequate professional indemnity insurance. If the Insolvency Practitioner relies on another type of valuation they must disclose this and why they considered in to be suitable.
In addition the statement must include a report of the activities used to market the old company assets. These activities must ensure that all potentially interested parties are made aware of the opportunity to purchase the assets. As a result the sale value should be maximized for the benefit of the creditors.
If the directors of the new company are the same as the old they are known as a connected party. When a business is being sold to a connected party they must demonstrate how the company will survive for at least 12 months from the date of the viability statement. They must also state what the new company will do differently to achieve this.
The Pre Pack Pool
To add weight to the Viability Statement directors who are considering a Pre Pack can use the Pre Pack Pool. This is an on line facility where validity of the Pre Pack solution can be independently reviewed.
The Viability Statement should attach the pre-pack pool opinion, confirm whether the pool’s recommendation was followed or state that the pool was not consulted.
When does the SIP 16 Viability Statement have to be provided?
A SIP 16 Viability Statement should be provided as soon as is practical after the liquidator’s appointment. If the information is not provided promptly creditors are able to ask for it.
In exceptional circumstances of commercial confidentiality the information required in the SIP 16 Viability Statement can be withheld. However the IP and the purchaser will be required to “comply or explain”, i.e. to follow the recommendations or provide clear and convincing explanations as to why the process has not been followed.
If the sale is to a connected party it is unlikely that commercial confidentiality would outweigh the need for creditors to be provided with the information required in a Viability Statement.