Key points
- Restructuring and insolvency professionals are very familiar with pre-packaged insolvency sales (pre-packs) and their established definition: an arrangement under which the sale of all or part of a company’s business or assets is negotiated with a purchaser prior to the appointment of an administrator, with the transaction effected immediately on or shortly after appointment.
- Pre-packs have been under public scrutiny since at least 2009. During that time, governments have adopted various approaches, from direct regulation to Recognised Professional Bodies (RPBs) regulation.
- This article briefly reviews the regulatory journey, before considering the Insolvency Service’s recent announcement that Insolvency Practitioners will no longer need to send their RPBs their SIP 16 statements.
Going back to the start
In 2013, Vince Cable, the then Secretary of State for Business Innovation and Skills, asked Teresa Graham CBE to lead an independent review into pre-packs and their wider economic impact as part of the government’s wider “Transparency and Trust” agenda.
Insolvency Service oversight of SIP 16s had started back in 2009, when it received SIP 16 statements directly from IPs. The Graham report recommended that scrutiny of SIP 16 statements was best left to the Recognised Professional Bodies (RPBs). This resulted in the Insolvency Service advising IPs through Dear IP 69, that for appointments from 1 November 2015, SIP 16 statements would need to be sent to the lead IP’s RPB instead of the Insolvency Service.
ICAEW supported this move, which essentially meant that SIP 16 compliance would be considered holistically, alongside other aspects of an IP’s work, rather than in isolation.
Since RPB monitoring started in November 2015, ICAEW alone has received over 2,600 SIP 16s statements.
Over time, as our evidence-base increased, ICAEW was able to take the view that we no longer needed to review all the SIP 16s submitted, and that we could move to a risk-based approach. The other RPBs subsequently adopted the same approach.
In the past 10 years we have seen relatively few significant SIP 16 deficiencies. Yes, we have seen some extremely poor SIP 16 submissions, and some have resulted in regulatory and/or disciplinary action, but they have very much been in the minority. The most serious issue identified from our SIP 16 reviews was in fact an ethical issue, whereby the same business was pre-packed several times, to the detriment of HMRC.
Roll forward to March 2026, and somewhat unexpectedly, the Insolvency Service told the RPBs that it would no longer be collecting data on SIP 16s from them, as this area was now considered low risk. That notification also confirmed that there was no longer an expectation that IPs would submit their SIP 16s to RPBs; a welcome decision for both sides.
Issues from SIP 16 reviews
The Insolvency Service decision aside, SIP 16 is very much a disclosure SIP, and has a very detailed list of required disclosures. While we wholeheartedly agree with the Insolvency Service’s view of the risk profile of this work, that’s not to say that all the SIP 16s we receive are perfect. As with numerous other aspects of regulation, it is not uncommon for us to see some deficiencies, notwithstanding the internal guidance, templates and training that firms have.
Sometimes we are told that deficiencies have arisen as staff have deleted relevant prompts/standard wording, and sometimes, we suspect, it is a matter of being so close to the case that it is hard to stand back and think what an independent reader needs to know.
It is also interesting that the deficiencies we see have arisen despite firms having review processes.
Some of the most common issues we see are around:
- Valuations for goodwill: While we usually see the value of chattel and property assets supported by an independent valuation by a valuer with professional indemnity insurance, this is not always the case for intangible assets such as goodwill or intellectual property. If a valuation has not been obtained then the IP should explain why not and how they have satisfied themselves as to its value and arguably, also, the reasonableness of the allocated sale consideration. Without that, there may be a concern by creditors that goodwill has been sold without the IP getting proper value for it, or that consideration allocated to goodwill could exceed its value, to enhance fixed charge realisations for the benefit of secured creditors.
- Deferred consideration: We often see that part of the sale consideration is deferred. Sometimes this is secured by a charge or personal guarantee. Ideally both should be supported by something tangible so that there is value supporting them. Where the administrator has not taken any security, they should explain the rationale for that decision and why they concluded that none was required. In the interests of transparency, in some cases it may also be appropriate to explain why the officeholder did not accept a lower offer where the sale consideration would have been paid in full on completion.
- Delays in issuing proposals: Under para 49(5) of Sch B1 to the Insolvency Act 1986, an administrator must issue their proposals as soon as reasonably practicable and, in any event, before the end of eight weeks after the administration appointment. Where there has been a pre-pack, SIP 16 says the administrator should seek approval of their proposals as soon as practicable after appointment and that ideally the proposals should be sent with the notification of the sale. Where the administrator has been unable to do this, the proposals should include an explanation for the delay.
As a RPB, we see a lot of pre-packs where the proposals are issued early but where they are not, the quality of the explanation for the delay in issuing the proposals can be lacking. The delay is sometimes attributed to the IP waiting for the directors’ statement of affairs. Given that r 3.35 (1)(h) of the Insolvency (England and Wales) Rules 2016 sets out the information the administrator needs to provide if the statement of affairs has not been submitted and given the level of financial information the administrator should already hold to have been able to conclude a sale, we would question whether this is an acceptable reason for a delay.
- Viability statements: While IPs are required to make the purchaser aware of the potential for enhanced stakeholder confidence by preparing a viability statement, it can be hard to tell from a desk top review that they have done so, without making additional enquiries. What we can say though is that it is relatively rare to see a viability statement provided.
Interaction with the evaluator's report
Since 30 April 2021 the Administration (Restrictions on Disposal etc to Connected Persons) Regulations 2021 (the Regulations) have restricted an administrator from making a substantial disposal to one or more connected persons within eight weeks of the administration, without either creditor approval or a qualifying report being obtained.
In our experience, the overwhelming preferred option is seeking an evaluator’s report over a creditor decision. And thankfully we have not seen any cases where either a qualifying report or a creditors’ decision has not been obtained.
Where there is a qualifying report, the Regulations require the administrator to provide a copy to the Registrar of Companies, and to all creditors with their proposals. But we have seen quite a few cases over the last couple of years, where the qualifying report has not been provided to creditors or filed with the proposals. In some cases, the SIP 16 statement/the proposals reference the evaluator’s report “being available on request”. In others, the existence of a positive evaluator’s report is mentioned, but that is as far as it goes. A robust review before issue should have avoided this omission.
It is clear from the above that internal reviews are not always identifying all the deficiencies, which is disappointing, given the purpose of the review and the time/ cost involved. While firms have their own templates and checklists, we think it would be useful if the drafter printed out a copy of the SIP and cross checked that they had included all the required disclosures in their SIP 16 statement.
We should remember that the purpose of the SIP 16 statement is twofold; to provide creditors with sufficient information such that a reasonable and informed third party would conclude that the pre-packaged sale was appropriate, and that the administrator has acted with due regard for the creditors’ interests. So, while the IP must comply with the detailed disclosure requirements in SIP 16, at the same time, the overall statement needs to offer a clear explanation to creditors as to why the pre-pack was appropriate. It is a twofold test – does the statement say what it should and does it explain what it should.
Looking to the future
The changes from Spring 2026 do not mean that RPBs are not going to review SIP16 statements anymore. It will be for the RPBs to determine through their risk work whether there are SIP 16, or pre-pack, concerns in relation to individual IPs or individual cases that they need to address. And there may be a need for follow up if a particular IP has previously submitted a particularly poor SIP 16 statement as RPBs may want to check for improvements.
When scoping our monitoring visits, we already consider whether a pre-pack is the most suitable type of administration for review; sometimes it will be, but sometimes we will want to review a more traditional administration. Periodically at ICAEW we select areas for thematic reviews, and earlier this year (before the Insolvency Service announcement) we covered a sample of SIP 16 statements; the issues coming out of this review are reflected above.
We will also look at a SIP 16 statement on a standalone basis if we receive regulatory intelligence about a particular case, and of course, we will need to review one if we receive a complaint about a pre-pack.
Thankfully though, after 10 long years, we are now looking at SIP 16 being subject to the same level of scrutiny as other regulatory requirements.
Useful links
Note from ICAEW
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