COMMERCIAL PROPERTY

Transcription

1 COMMERCIAL PROPERTY Session topic Pre-pack Administrations Session objectives To inform viewers of what a pre-pack is and how it works. To look at the use of pre-pack administrations as an insolvency tool within the property sector; to consider both the criticisms and benefits of pre-packs; to look at the future use of pre-packs within the industry including the introduction of the SIP 16 questionnaire, aimed at making the process more transparent. Intended audience Management surveyors and credit control personnel. Summary Programme Mention the words pre-pack to any high street property owner and you may well live to regret it! Despite having been in existence for many years there s been an explosion in the use of pre-packs in the past 12 months. Some critics are claiming they are now the insolvency practitioner s, or IP s, tool of choice. But why have they come under so much criticism? And is it justified? On one side we have property landlords and suppliers citing legalised robbery. On the other IP s, and the companies they represent, worship them as a saviour of jobs. But who is right? Retail property has been particularly hard hit in the current recession and several key retailers, including Allied Carpets and Lombok, have been bought out of pre-pack administration. This has had a huge impact on the high street. Property owners are having a hard time dealing with the pre-pack process and notably with the news that over a third of the administrations do not comply with the Insolvency Service regulations. Driven by this, retail landlords and insurers are pushing for greater clarity from administrators. One of the steps taken to assist property owners is the development of a SIP 16 questionnaire by Lovells and the British Property Federation. 1 COM 31318

2 In this programme we inform viewers of what a pre-pack is, consider both the criticisms and benefits, look at the steps taken to date to improve the reputation of pre-packs, as well as considering what future changes might be made. There is also advice on what action should be taken if you come face to face with the pre-pack. Programme notes The study notes consist of the following documents: Pre-packaged Sales ( Pre-packs ) article reproduced with the kind permission of R3 Statement of Insolvency Practice 16 (E&W) Guidance Note - reproduced with the kind permission of R3 SIP 16 Questionnaire and notes reproduced with the kind permission of Lovells and BPF About the contributors Peter Sargent President, R3 Peter is a partner with Begbies Traynor in Halifax, specialising in small family managed businesses, business IVAs and bankruptcies. Since becoming R3 s President in April 2009, Peter has appeared on the BBC World Service and preceeding that on GMTV s Sunday Programme and many times in the national press. He believes a return to some old-fashioned thrift values is part of the solution to today s credit crunch. While we have seen examples of irresponsible lending by creditors, people also need to rein in their own borrowing. When problems occur I have known people to case my joint for days before coming in as there is still a huge fear of admitting financial problems. Seeking advice will prevent greater problems further down the line. Peter started his insolvency career at Revell Ward, a mixed firm in Huddersfield. He became a partner in the practice in 1988 and subsequently left to start his own firm in The firm was then acquired by Begbies Traynor in November He was also a founder member of the Huddersfield Town Survival Trust which brought about the rescue of the club by local businessmen in He is a member of the Board of Management of the Mikron Theatre Company in Marsden and counts walking, gardening and lyenga yoga as his outside interests. Daniel Norris Lovells Daniel has wide experience in all aspects of commercial real estate, but specialises in insolvency related transactions and advice, where he acts for corporates, insolvency practitioners and funders both pre- and post-process, and advises landlords on tenant default. He represents the real estate group in the firm s wider business restructuring and insolvency practice are Otherwise, he has a broad background in investment and development and regeneration transactions. His development and public sector experience ranges from small mixed use and bespoke facility procurement to major residential developments and town centre regeneration, and he is involved in advising on the UK s largest urban regeneration project. On the investment side, Daniel s experience covers a variety of sectors, but in particular shopping centre lettings, sales and acquisition and office schemes (single occupier, multi-let and office parks). 2 COM

3 The principal clients for whom Daniel has worked recently in the restructuring and insolvency context are Deloitte, Lloyds/HBoS, Barclays and a major high street retailer. Other main clients include the Church Commissioners, the Prudential, Argent, Welbeck, Royal Mail and Swansea Council. Daniel is a member of the BPF, IPF, BCSC and ULI. Daniel is listed as a Leading Individual in the Legal directory. Ian Fletcher - Director of Policy (Real Estate), British Property Federation Ian Fletcher is the British Property Federation s Director of Policy for Real Estate. Ian s brief at the BPF covers a wide range of housing, development and landlord and tenant issues. His successes include the industry s campaign against possible legislative intervention on upward only lease terms, work on the pan-industry campaign for REITs, and allowing collective investment schemes to invest in residential property via selfinvested personal pensions. He is Vice-Chair of the National Approved Lettings Scheme (NALS) and sits on the London Mayor s Housing Forum and editorial board of ROOF the housing magazine. Ian joined the BPF in May 2002 from the British Chambers of Commerce (BCC), where he was Head of Policy and Chief Economist, representing the interests of Britain s small business community. Amongst his campaigning successes was the dropping of proposals for a supplementary business rate. Ian started his working life in the small business section of what was then Midland Bank and also spent a year teaching. He holds professional qualifications in banking and market research. Discussion Points Discuss the reasons behind some critics claiming that pre-packs are legalised robbery. Discuss whether the Insolvency Service s SIP 16 Guidance Note goes far enough to address concerns relating to transparency within the pre-pack process. Discuss the future of pre-packs within the retail property sector. 3 COM

4 COMMERCIAL PROPERTY Notes The study notes consist of the following documents: Pre-packaged Sales ( Pre-packs ) article reproduced with the kind permission of R3 Statement of Insolvency Practice 16 (E&W) Guidance Note - reproduced with the kind permission of R3 SIP 16 Questionnaire and notes reproduced with the kind permission of Lovells and BPF 4 COM

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11 British Property Federation SIP 16 Questionnaire In the event of a Pre-Pack Administration This questionnaire provides many of the important questions a landlord will need to ask an administrator once a tenant has been put into administration, with its valuable business assets sold off within the first few days of the administration. Administrators have a general duty to the insolvent company s creditors as a whole, but will often take the course of action that will give rise to the quickest realisation of value (i.e a sale of the business). In spite of the administrators duty, creditors often have to wait a long time (sometimes until the first creditors meeting) to establish what has happened to the debtor, its business and the assets of the business. In the case of a pre-pack administration, a buyer is lined up for the business before the administration starts, so that protected by the moratorium the administrator can sell the valuable parts of the business to the buyer whilst having statutory protection from action by creditors. Because pre-pack sales typically take place on the first day of the administration, the creditors to the business are often caught by surprise. Recognising this problem, the Insolvency Service has produced a guideline Statement of Insolvency Practice 16 (SIP16) to remind the administrators of their duty and to give full and clear disclosure to creditors as soon as possible after the pre-pack transaction has taken place. Landlords are likely to have many questions to ask administrators following the announcement of a pre-pack administration, in particular whether the insolvent tenant s lease has been assigned (without consent) to the buyer. If so, the landlords will want to know who the buyer is, and what its intentions are for the property, so that they can make an informed decision as to whether to eject the assignee or accept them formally as a tenant under a retrospective license to assign or under a new lease. Using this questionnaire This questionnaire has been designed by Lovells LLP and is based on the SIP 16. As such, it contains many of the questions an administrator should be expected to answer at an early stage following the sale of an insolvent tenant s business. The answers received from the administrator will help you to make a decision as to how to treat the occupier (whether that is the insolvent tenant or unknown assignee). In certain circumstances it may also give you grounds for challenging the administrator s decisions, though cases such as these may be infrequent. Disclaimer This questionnaire is provided as a general guide to members of the British Property Federation. It should not be relied upon as a substitute for specific legal advice. 11 COM

12 Questionnaire for Administrators: In the event of a Pre-Packaged sale of a Business by an Administrator (SIP 16) Definitions: The Company means [ insolvent tenant ]; You means the administrator or administrators of the Company for the time being; The Administration means the administration of the Company within the meaning of the Insolvency Act 1986; The Transaction means the sale of all or part of the business of the Company following the commencement of the Administration; The Buyer means a buyer of the Company s business and assets following the commencement of the Administration; The Property means the leasehold property known as [ enter address ] which was vested in the Company immediately prior to commencement of the Administration Having regard to Statement of Insolvency Practice 16 (E&W) and in accordance with your duty to creditors as the administrator of the Company, we require you to address the following questions as a matter of urgency. Please also confirm the date, time and location of the initial creditors meeting. PART 1: The Administrator s Appointment Q1. How, and in what capacity, were You initially introduced to the Company prior to the commencement of the Administration? Q2. What was the extent of your involvement in the affairs of the Company prior to the commencement of the Administration? Q3. Prior to the Transaction what alternative courses of action did You consider taking for the purpose of satisfying the statutory objectives of the Administration? Q4. Please explain, with reference to the projected final outcomes for the Company, and its creditors, why those alternatives were rejected. 12 COM

13 Q5. Please explain why You considered it inappropriate to trade the business and offer it for sale as a going concern during the Administration. Q6. Please give details of any requests You have made to potential funders to fund working capital requirements for the Company and its business. Q7. Please confirm whether efforts were made to consult with the Company s major creditors prior to the Transaction. If so, please give details of the consultation and its outcome. PART 2: The Property Q8. Was the Property assigned to the buyer as part of the Transaction or does it remain vested in the Company (in Administration)? Q9. Please give details of the Transaction as far as it relates to the Property including: i. The value attributed to the Property ii. The price paid for the Property and the terms of payment iii. The name and address of the Buyer iv. Whether any effort was made to consult with [ insert your company's name ] prior to commencement of the Administration or prior to the Transaction? Q10. Is the Buyer in occupation of the Property? If so, is the Buyer trading from the Property? Is the Buyer occupying as assignee, licensee or subtenant? Q11. If the Buyer is not in occupation of the Property, please confirm the identity of the occupier of the Property both before and after the date of the Transaction? Q12. If the Buyer is not in occupation of the Property please confirm the basis on which the occupier is in occupation (whether as subtenant, licensee or assignee). Q13. Whether by or on behalf of the Company or by You or a firm partnership or company with which You are associated please confirm i. What marketing activities were conducted prior to the Transaction in connection with the sale of the Property, and ii. 13 COM What valuations were obtained for the Property prior to the Transaction?

14 PART 3: The Transaction Q14. What was the date on which the Administration commenced? Q15. What was the date of the Transaction? Q16. What is the name and address of the Buyer? Q17. Is there a connection between the Buyer and either the directors, shareholders or secured creditors of the Company? If so, please explain the connection Q18. Please provide the names and addresses of any directors or former directors of the Company who are involved in the management or ownership of the Buyer or of any other entity into which any of the Company s assets have been transferred? Q19. Has any director given guarantees for amounts due from the Company to a prior financier? Is that financier financing the Buyer or the Transaction? Q20. Whether by or on behalf of the Company or by You or a firm partnership or company with which you are associated please confirm: i. What marketing activities were conducted prior to the Transaction in connection with the sale of the Company s business, and ii. What valuations were obtained for the business or the underlying assets of the Company prior to the Transaction and in connection with the sale of the Company s business and/or the underlying assets? Q21. If the Transaction is part of a wider transaction, please describe the other aspects of the wider transaction PLEASE RETURN THIS QUESTIONNAIRE TOGETHER WITH YOUR ANSWERS TO: DATE: 14 COM