UNPACKING SIP 16

1. UNPACKING SIP 16 Stefan Ramel, Guildhall Chambers Daisy Brown, Guildhall Chambers Wednesday 11 February 2009

2. What’s all the fuss about? • Finch “PPA: Bargains in the Shadow of Insolvency or Shadowy Bargains” [2006] JBL • Walton “PPA: Trick or Treat?” (2006) 19 Ins Int 113 • Bloom & Harris “PPA – what should be done given the current disquiet?” (2006) 19 Ins Int 122 • Moulton “The uncomfortable edge of propriety – pre-packs or just stitch-ups?” Recovery Aut 05, p 2 • Flynn “PPA – a regulatory perspective” Recovery Sum 06, p.3 • Davies “PP – he who pays the piper calls the tune” p.16 • Lockerbie & Godfrey “PPA – the legal framework” p.21 • Goldring “A perfect murder?” Recovery Sum 08, p.34

3. “pre-pack” n. “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, and the administrator effects the sale Immediately on, or shortly after, his appointment.” : SIP16, para.1

4. SIP 16 – A 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 detailedexplanation and justification (para 8) to include specified information of which the administrator is aware (para 9) - Hold initial creditors meeting asap after appt (para 11).

5. The cornerstones of SIP 16 • The creditors must be provided with “a detailed explanation and justification” (SIP 16, para. 8). • Para. 9 identifies information which “should be disclosed to creditors” in all pre-packs. • Administrator must disclose information “of which he is aware after making appropriate enquiries” (SIP 16, para. 9).

6. Disclosure Requirements in Summary • Source of Administrators initial introduction / Extent of Administrators prior relationship; • Did the Administrator market the business? What valuations did he obtain? • What alternative options did the Administrator consider? Could the administrator have traded the business? What funding requests were made?

7. Disclosure Requirements in Summary • Were the major creditors consulted? • What assets did the Administrator sell? What consideration did he receive? Are there any adverse terms in the sale contract? • Identity of purchaser / Connections between purchaser and oldco? Same directors / shareholders?

8. Likely Impact of SIP 16 Para 9 What will be the impact of SIP 16, para. 9? Will it: • lead to greater uniformity? • measurably increase administration costs? • erode value for creditors? • increase the likelihood of challenges to administrators?

9. “Exceptional Circumstances” (para. 10) • Onus is on the administrator to establish why para. 9 disclosure has not been complied with. • What does “exceptional circumstances” mean in this context? Out of the ordinary, special or uncommon. • “Considerations of commercial confidentiality” • Statutory exceptions

10. Challenges • Invalid appointment • Administration application • Choice of administrator • Directions application • Injunction • Unfair harm • Misfeasance application • Remuneration • Professional complaint

11. UNPACKING SIP 16 Stefan Ramel, Guildhall Chambers Daisy Brown, Guildhall Chambers Wednesday 11 February 2009