Landlords have slammed the “growing underhand practice” of insolvency practices such as pre-pack administrations that they say siphons “tens of millions of pounds out of pensioners’ savings into the pockets of private investors profiting from retail failure”.
The British Property Federation (BPF) has launched a Taking the Profit campaign to “restore fairness to the insolvency system”.
It cautioned that it is “becoming increasingly concerned that Insolvency Practitioners are acting more in the interests of the buyers than creditors”.
The BPF has criticised pre-pack administrations, where the terms of the sale are “kept deliberately vague”.
It said landlords are pressurised to give concessions on existing leases of profitable stores “often under threat that if concessions are not given then that landlord’s property will not feature in the sale”.
“The result on profitable stores is simply to transfer profits from pensioners’ savings in property to the new buyers of the business, often private investors,” the BPF said.
“Another consequence is that it puts rival successful retailers at a disadvantage. This reinforces failure, rather than promoting more successful retailers,” the BPF added.
It insisted that landlords are “supportive of a rescue culture”, but is calling on the Government to:
- Amend the Insolvency Practitioners’ guidance notes - SIP16 – to make clear which assets are part of the sale, on which it is seeking to negotiate, and which it does not want;
- Amend SIP16 so that it frowns on any collusion between the insolvency practitioner and buyer or his agent to extract concessions on leases that are part of the sale;
- Speed up the process of achieving better regulation of the insolvency sector;
- Tighten up the rules on advertising by Insolvency Practitioners.
BPF chief executive Liz Peace said: “In some of the most high profile retail insolvencies tens of millions of pounds are lost in pensioners’ savings as concessions are extracted from landlords of profitable stores by the new buyers of the insolvent company.
“The prime role of the Insolvency Practitioner in any rescue is to secure the best result for creditors, not to maximise the profits of the new company and we are becoming increasingly concerned that Insolvency Practitioners are acting more in the interests of the buyers than creditors.
“On both the flaws in pre-packs and better regulation of the insolvency sector, the Government has frankly analysed the problems to death, and it now needs to act if it is to maintain unsecured creditors’ trust in the insolvency system.”
Nick Starling, director of general insurance at the Association of British Insurers, said: “The pre pack process whereby a failing company is bought out and quickly resumes trading must be made more transparent, with better disclosure and accountability. The current system does not adequately protect the interests of unsecured creditors.”