What is Statement of Insolvency Practice 16 (SIP 16)? - Pre-pack Administrations & Disclosure

All Licenced Insolvency Practitioners are heavily regulated.  It is mandatory for insolvency practitioners to follow, to the word, regulatory documents known as Statements of Insolvency Practice - or SIP's. Statement of Insolvency Practice number 16 (SIP 16) was introduced to prevent perceived possible misuse of pre-pack Administrations. This statement of insolvency practice 16 is all about the required disclosures that an Administrator must make to creditors of the details of any pre-pack agreement and sale.

As background you should be made aware that the Courts have ruled in a number of cases that it is quite permissible for an Administrator to sell the assets of a company immediately after he has been appointed and before any of the creditors have a say in the matter. Such sales are known as "Pre-packs".

Statement of Insolvency Practice number 16 (SIP 16) says that an insolvency practitioner must, before organising a pre-pack, have undertaken much work that he can then immediately disclose to creditors immediately after the pre-pack agreement has been entered into. The disclosure information that must be provided to the creditors includes:

• The source of the Administrator's initial introduction to the company.

• The extent of the Administrator's involvement prior to his appointment.

• Any marketing activities (in relation to the sale of the Company's underlying business) conducted by the Company or the Administrator.

• Any valuations obtained of the business or the underlying assets.

• The alternative courses of actions that were considered by the Administrator with an explanation of possible financial outcomes.

• Why it was not appropriate to trade the business, and offer it for sale as a going concern, during the Administration

• Details of requests made to potential funders to fund working capital requirements

• Whether efforts were made to consult with major creditors

• The date of the pre-pack transaction

• Details of the assets involved and the nature of the transaction

• The consideration for the transaction, terms of payment, and any condition of the contract that could materially affect the transaction

• If the sale is part of a wider transaction, a description of the other aspects of the transaction

• The identity of the purchaser

• Any connection between the purchaser and the directors, shareholders or secured creditors of the company

• The names of any directors, or former directors, of the company who are involved in the management or ownership of the purchaser, or of any other entity into which any of the assets are transferred.

• Whether any directors had given guarantees for amounts due from the company to a prior financier, and whether that financier is financing the new business

• Any options, buy back arrangements or similar conditions attached to the contract of sale

From the above you can see that the extent of the required disclosure set out in Statement of Insolvency Practice Number 16 (SIP 16) that an Administrator must send out to creditors of the matters leading up to an Administration and the terms of the Administration pre-pack agreement are extensive.