SIP 16
What’s in the tin?
Presentation by
Martha Maher
1. SIP 16: What SIPs provide
Basic principles?
Essential procedures?
Yes
Yes
Definitive statement of law?
No
[preamble SIP 16]
2. SIP 16: What is a “pre-pack”?
a) “negotiated arrangement” pre-app
b) for sale of
-all or part of a company’s business
or
-all or part of a company’s assets
and
c) A. effects the sale immediately on, or shortly
after, his appointment
[para 1 SIP 16]
1
3. SIP 16: In summary:
- Be mindful of duties to unsecured creditors (para
2,3,6,7)
- Keep a detailed record of your decision (para 2)
- Clarify role and relationships from outset (para 5)
- Provide creditors with written detailed explanation
and justification for pp (para 8)to include specified
information of which A aware (para 9)
- Hold initial creditors meeting asap after appt (para
11).
[SIP 16]
4. SIP 16: Duty to those affected by
Pre-Pack
Participating IP and those who act on his advice
owe duties to those affected by the Pre-Pack
- Directors duties: misfeasance, Wr t, CDDA
- Advisors duties: tort, Fr trading
- Administrator’s duties: para 75 Sch B1
Therefore have regard to the associated risks.
[paras 2,6 SIP 16]
5. SIP 16: Challenges and Claims
Prepack caselaw does not afford blind protection
Challenges: para 74 Sch B1
(“unfair harm” to creditor/member interest)
Claims: para 75 Sch B1
(Administrator misfeasance/Breach of fiduciary or other
duty/accountability for money or property/misapplication
or retention of money or property)
[para 3 SIP 16]
2
5A. SIP 16 : Good phoenix or bad?
“The [Prepack] power must be exercised only in
genuine furtherance of administration purpose”
[para 3 SIP 16]
Innovate Logistics v Sunberry Properties Ltd 2008
[EWCA] Civ 1261
6. SIP 16 : Pre-pack preparation
General
When considering manner of disposal, A to bear in mind
Schedule B1 paragraph 3 requirements :
Para 3(2): A. must exercise functions in interests of all
creditors.
Para 3(4): Where objective to realise property for
distribution to secured/prefs A must avoid unnecessary
harm to creditors
And demonstrate that you considered duties ie
recordkeeping!!
[para 7 SIP 16]
7.
SIP 16 : Record-keeping
Record reasoning behind decision
Maintain detailed record
Explain and justify pre-pack
[para 2,8 SIP 16]
3
8.
SIP 16: Record-keeping contd..
Code of Ethics para 74 on recordkeeping
“It will always be for the IP to justify his actions. An IP
will be expected to be able to demonstrate the steps
that he took and the conclusions that he reached in
identifying, evaluating and responding to any threats
[objectivity], both leading up to and during an insolvency
appointment, by reference to written contemporaneous
records”
9.
SIP 16: Record-keeping contd…
Code of Ethics para 75 on recordkeeping
“The records an IP maintains, in relation to the steps
that he took and the conclusions that he reached,
should be sufficient to enable a reasonable and
informed third party to reach a view on the
appropriateness of his actions”.
10. SIP 16: Preparation for pre-pack
Pre-appointment engagement letter:
* extent of IP role
* to whom they owe duty of care
* relationship with directors
* directors independent advice
[SIP 13]
[* remuneration for pre-A work]
[para 5 SIP 16]
4
11. SIP 16 : Preparing for pre-pack
Working backwards from Para 9:
- marketing
- valuations
- alternatives
- analyse all possible financial outcomes
- consultation with major creditors
- consider connections between seller and buyer
[para 9 SIP 16]
12. SIP 16: Addressing the disclosure
deficit
IPs must provide a detailed explanation and justification
to unsecured creditors of why Pre-Pack took place
“so they can be satisfied that A acted with due regard
to their interests”
[para 9 SIP 16]
13. SIP 16: The importance of “Transparency”:
Code of Ethics paragraph 36
IP
“..has a professional duty to report openly to those with
an interest in the outcome of the insolvency. An IP
should always report on his acts and dealings as fully
as possible given the circs of the case, in a way that is
transparent and understandable. An IP should bear in
mind the expectations of others and what a reasonable
and informed third party would consider appropriate”
5
14.
SIP 16: Transparency: IPA Guidance
“The Council regards this provision of the Code to be of
fundamental importance”(para 5)
“full explanation” of “any significant decision” or
“material event” and “the reasons” (para 7)
IPA: Transparency and Confidentiality: A Guidance
Note (November 2008)
15. SIP 16: What information ought to
be disclosed?
17 heads of information to be disclosed
in all pre-pack cases
“as far as A is aware after making appropriate
enquiries”
[para 8 SIP 16]
16. SIP 16: Addressing the disclosure
deficit:
Para 9 SIP 16 disclosures
Objectivity issues:
- source of introduction
- extent of pre-appointment involvement
6
17.
SIP 16: Para 9 Disclosures …contd…
Professional competence issues
- marketing
- valuations
- alternative courses of action
- analyse all possible financial outcomes
18. SIP 16: Para 9 disclosures…contd…..
Transparency issues:
- consultation with major creditors
- consider connections between seller and
buyer
19. SIP 16: Exceptions to disclosure
Commercial Confidentiality in arms length
sale
but
must state the reasons for non-disclosure
of information
[SIP 16 para 10]
7
20. SIP 16: Exceptions to disclosure
contd..
Transparency v Confidentiality
transparent
confidential
To disclose or not to disclose, that is the question..
If in doubt seek legal advice!
[IPA advice para 11 Guidance Note]
21. SIP 16: Exceptions to disclosure
Non disclosure agreements in contracts of sale?
May IP enter into new obligations of confidence
that might impact on transparency commitments?
[SIP 16 para 10]
22. SIP 16: Meeting and Timing of
Para 9 Disclosures
1. Disclose on first notification to creditors (Sch B1 46)
(as soon as reasonably practicable post
appointment)
2. Hold initial creditors meeting asap post A
(contrast Sch B1 para 51 which refers to “asa
practicable”)
3. Fallback: Disclose in statement of proposals sent
asa practicable post appointment
[SIP 16 para 11]
8
23. SIP 16: What’s in the tin?
Statutory exceptions not restricted by SIP 16
Eg
- IR 2.30 [Court order permitting non disclosure SOA]
- IR 2.33.3 [SOA disclosures re prescribed part estimate
does not require disclosures which may seriously prej
comm ints of company]
- IR 7.31 [Court Orders restricting access to Ct file]
[para 12 Sip 16]
9