UNPACKING SIP 16

Stefan Ramel, Guildhall Chambers

Daisy Brown, Guildhall Chambers

Wednesday 11 February 2009

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

“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

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 detailed explanation 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).

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).

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?

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?

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?

“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

Challenges

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

UNPACKING SIP 16

Stefan Ramel, Guildhall Chambers

Daisy Brown, Guildhall Chambers

Wednesday 11 February 2009