Manchester, United Kingdom
Richard qualified as a Solicitor in 1997 and has 19 years’ experience in all areas of contentious and non-contentious corporate recovery and insolvency. He joined JMW in 2009 as a Partner and the Head of the Corporate Recovery and Insolvency department.
Richard’s expertise covers both corporate and personal insolvency (including administrations, receiverships, creditors voluntary/compulsory/provisional/members voluntary liquidations, directors' disqualification and related matters). He has a wide and varied client base including public and private companies, secured lenders, insolvency practitioners, invoice discounters and accountants in addition to private individuals.
Richard regularly speaks at external insolvency conferences in London and Manchester as well as client conferences, seminars, R3 events and courses. He has chaired a succession of personal insolvency annual conferences in Manchester.
Richard is a full member of both the Insolvency Lawyers Association and R3 (the Association of Business Recovery Professionals). He also presently holds the position of Chair for R3 in the North West and sits on R3's national committee for Members & Member Services in addition to being a regional member of R3’s national council.
Legal directory Chambers and Partners 2014 comments that Richard Wolff ‘has a solid reputation in the market and recently in Chambers and Partners 2016 Richard has been described as having "a particularly deep understanding of insolvency situations in the retail sector."
Richard’s strong links with the R3 association demonstrate his considerable knowledge of the field.
I initially worked as an administrator in the Corporate Recovery department of the London office of Touche Ross from 1990 to 1993 and later qualified as a solicitor in 1997 whilst at Dickinson Dees solicitors in Newcastle. I moved to Davies Arnold Cooper's Manchester office following qualification and then joined Halliwells in 1999 where he was made a partner in 2003. I joined JMW in January 2009 as head of the Corporate Recovery and Insolvency department.
I specialise in both corporate and personal insolvency (including administrations, receiverships, creditors voluntary/compulsory/provisional/members voluntary liquidations, directors' disqualification and related matters). I advise a wide variety of clients including public and private companies, secured lenders, insolvency practitioners, invoice discounters and accountants as well as private individuals.
I have worked on a number of notable/high profile matters including acting for the administrators of the Allsports group of companies, acting for the then purchasers of the Texstyle World chain of home improvement stores in Scotland out of administration and acting for the administrators of Blackpool Automotive Limited (formerly TVR Engineering). More recently I acted for Richer Sounds on the purchase out of administration of certain assets of Empire Direct and acted for N Brown Group on the purchase of the business and assets of High and Mighty, the well known high street retailer, from its administrators.
I have spoken at client conferences and seminars, at R3 events and courses and have chaired personal insolvency conferences in Manchester and insolvency conferences in London.
I am a director of R3 and a regional rep on R3's Council. I also serve as R3's Regional Chair in the North West and sit on R3's national committee for Membership & Member Services.
I am a member of the Insolvency Lawyers Association and Insol International and a Fellow of R3 (the Association of Business Recovery Professionals).
1987 - 1990
Classics - MA (Cantab), Roman History, Philosophy, Latin and Greek language and literature
Legal directory Chambers and Partners 2014 comments that Richard Wolff ‘has a solid reputation in the market
In Chambers and Partners 2016 Richard has been described as having "a particularly deep understanding of insolvency situations in the retail sector."
By Marialuisa Taddia1 November 2011
Businesses entering pre-packaged administrations (‘pre-packs’) have been grabbing headlines. Retailers Habitat UK, Alexon Group and Jane Norman are but a few high-profile examples. But there are examples in the legal sector too. Assets of top 50 law firm Halliwells were purchased by Hill Dickinson, HBJ Gateley Wareing and Barlow Lyde & Gilbert as part of a pre-pack deal in 2010.
A pre-pack involves the sale of an insolvent company’s business and assets that is agreed in principle before the company goes into administration. The sale is then carried out immediately after the administrator is appointed. This form of insolvency procedure is credited by proponents with maintaining business activity and jobs in a very difficult trading environment.
However, the government, backed by some creditors, has worries about pre-packs: what is called ‘phoenixing’ or sales to ‘connected’ parties, typically to the existing management or owners of the insolvent company - minus the debts. Last year, 72% of pre-pack sales were to individuals and companies associated with the failed company, according to data compiled by the Insolvency Service (IS), part of the Department for Business, Innovation and Skills (BIS).
In March, following a government consultation, minister Edward Davey announced a string of proposals for tightening controls on pre-pack sales to connected parties. The aim, Davey argued, was not to ‘outlaw’ pre-packs, but to make sure they were done ‘fairly and reasonably’. He said: ‘I want to make sure that creditors have a fair chance to have their voice heard.’
In June the IS published draft regulations on pre-packs that were to be implemented via amendments to the Insolvency Rules 1986. However they pleased no one, not even the creditors, so they were withdrawn.
The amended rules were originally expected to be implemented in October but now this ‘will not be before April 2012’, an IS spokesperson told the Gazette. The government is still considering responses and IS hopes to publish new draft regulations at the beginning of next year.
There is currently no legislation on pre-packs, although there is case law (Re T&D Industries Plc and Re Transbus International Ltd) which shows that a sale can be agreed in advance of the administration. Ruth Jordan, an insolvency barrister at Serle Court, says: ‘That is possibly the reason why the government is bringing in these rules, because pre-packs were developed by insolvency practitioners in their roles as administrators.’
Jordan explains that pre-packs have been on the increase since the Enterprise Act 2002 came into force in 2003. The act permits an administrator to be appointed, by a creditor, company or director, without a court application and hearing.
But along with their growth has come criticism. Jordan says: ‘Before the Enterprise Act, even if you could arrange the sale of a company while it was going into administration you were always going to go to court anyway to decide whether it was appropriate to put the company into administration. But, from 2003, there was the perception that backroom deals could be done.’
However, she adds: ‘These [draft] rules have gone too far because they are trying to deal with a perception of unfairness and there is still a question mark over whether there is evidence of actual abuse.’
Frances Coulson, president of R3, the insolvency trade association, agrees: ‘I think that pre-packs get a bad press because creditors don’t like seeing the same directors carrying on running the same business as if nothing happened.’ She believes this is an ‘emotional reaction’.
Coulson points to research conducted by Dr Sandra Frisby of the University of Nottingham in 2010. This shows that secured creditors, typically banks, recover an average of 35% of debts in pre-packs, compared with 33% in a straightforward business sale, that is, a ‘going concern’ sale of the business negotiated and arranged after the start of the insolvency procedure.
Returns to unsecured creditors, which typically feel most hard done by pre-packs, are also slightly higher – an average of 5% in a pre-pack compared with 4% in a business sale.
Dr Frisby also found that pre-packs are good for preserving jobs. In 92% of pre-packs all employees were transferred to the new company, compared with 65% in a business sale.
By far the most controversial provision in the draft rules - and one that the government is understood to be wedded to - was the requirement that IPs give three business days’ notice to all creditors of the terms of any proposed sales to a connected party where there has been no open marketing of the assets.
Davey said that the notice would allow creditors ‘to express concerns… or to make a higher offer for the assets, and in cases where the circumstances justify it, apply to the court for injunctive relief’.
In fact, the notice proposals were something of a surprise, as they were not in the original consultation. ‘It appears to be something of a sound-bite fix, but for us it is the worst of all worlds,’ says Coulson. Three business days may not be enough time for creditors to object. At the same time, says Coulson, it is probably long enough to ‘derail a rescue’. Especially if you consider that a notice period of three business days means a week, because it excludes the posting day of receipt and any weekend, she notes.
During this period suppliers could threaten to object to the proposed pre-pack and act unreasonably by varying terms, for example by increasing the costs of materials, supplies or services, reducing returns to creditors. And a week is long enough ‘for your key employees to worry and disappear or be poached’, adds Coulson.
Alan Gar, a partner at Simmons & Simmons’ London corporate recovery and restructuring practice, points to the example of law firms, where value is strongly tied up with their people. He says: ‘The moment people learn about a pre-pack they become uncertain and concerned and would just leave. You would lose much of the value that you were looking to preserve. A pre-pack is all about speed because speed helps retain value. My concern with putting in three days for creditors to stop the sale going ahead is that you would take away the very reason why pre-packs work.’ He adds: ‘I think we would have seen a different result with Halliwells if we had seen such a three-day advert.’
Creditors argue that disclosure means they get a better deal. But Elizabeth Taylor, a partner in the insolvency team at Darbys Solicitors, says: ‘There is this presumption on the part of creditors that there is some stitch-up and that, by giving notice, somehow there is going to be a higher price paid for the assets. Nine times out 10, a pre-pack is all about preserving the goodwill. If you suddenly start advertising to the world that the business is bust, that there is going to be a pre-pack, potentially it’s likely to result in there being no offers for the business and the goodwill being lost.’
Even with a notice period, unsecured creditors may struggle to challenge in court the administrator’s decision. ‘We have seen time and again judges say that they are not accountants or insolvency practitioners and that they cannot give a commercial judgment,’ Gar says. Put forward in the name of fairness, this proposal also potentially makes the pre-pack administration process even less fair, some argue.
Normally some creditors are left out in the cold in an insolvency and these will predominantly be the unsecured creditors, who by law get paid last, after the administrators, employees and secured creditors, in that order. Chris Mallon, president of the Insolvency Lawyers Association (ILA), says: ‘You would have to give notice to people who are completely out of the money and will never have an economic interest in the company [under administration]. You would give them a voice, a negotiating lever in a situation where in other circumstances they would not have it.’
Paul Gilks, partner and head of the corporate department at London-based Glovers notes that banks have to be behind any pre-pack and their support is nearly always conditional on the owner-directors of the insolvent business injecting fresh cash. ‘That is why pre-packs are good. They force re-investment where businesses have some chance of recovering,’ he says.
Despite criticism of the government’s proposals, ministers are tapping into real concerns among unsecured creditors.
Richard Barnett, head of legal at Euler Hermes, the UK’s biggest credit insurer, argues: ‘The system at the moment puts unsecured creditors at a massive disadvantage. The owners of the business who mismanaged it and put it into a difficult position in the first place, come out well from this process because they get the profitable part of their business sold back to them free of debt. The secured creditors normally get paid 100% and the unsecured creditors receive absolutely nothing, which seems to us fundamentally unfair.’
The notice mechanism proposal is supported by Euler Hermes, whose clients are small to medium-sized unsecured trade creditors supplying goods and services typically on 90-day credit terms. But the credit insurer would like to see a longer notice period, in order to allow unsecured creditors time to examine sale proposals, seek advice and take any action.
Barnett says: ‘While confidential discussions are going on between the IP, secured creditors and the owners of the distressed company, there is no warning to our clients [the unsecured trade creditors] who will go on extending credit with no idea that a pre-pack is around the corner.’
Euler Hermes also wants changes regarding what it sees as a conflict of interest in the role of IPs under pre-pack. Currently the IP acts as both an adviser to the directors of the company and the secured creditors before the pre-pack is implemented, and then as the administrator who effects the sale. Barnett points out that unsecured creditors are excluded from the confidential discussions leading to a pre-pack and can only object to the sale after the deal is done. ‘It’s a fairly long and expensive process to challenge retrospectively the act of the IP and that virtually never happens,’ he says.
‘We think there is a clear conflict in the way IPs are allowed to wear two hats. There should be a ban on the same IP acting as both the adviser to the distressed company prior to the pre-pack and acting as the administrator to implement it.’ The idea is that a second IP would be a better guarantor and that the interests of all creditors are considered.
However, Julie Palmer, a partner at insolvency specialist Begbies Traynor, argues that this is impractical. ‘These are often extremely urgent situations. To take additional time to have somebody else come in would delay the process and seriously hamper the ability to save a lot of these businesses and many jobs.’
But unsecured creditors do not buy the argument that pre-packs are good for employment either. ‘You save jobs at the company that is subject to the pre-pack but the knock-on effect on the companies in the supply chain may mean that you lose jobs in those companies as a result of insolvencies through loss of their receivables,’ argues Barnett.
Statement of Insolvency Practice (SIP) 16 was introduced in January 2009 to allay concerns about the perceived lack of transparency of pre-packs. It requires IPs to make detailed written disclosures to creditors where there is a pre-pack sale. This includes an explanation and justification of why a pre-pack was undertaken and what alternatives were considered by the IP.
The IS has been monitoring the operation of SIP 16. In 2010 compliance increased to 75%, from 62% in 2009. Of 136 cases found not to be compliant (out of 538 companies reviewed), 13 were referred by the IS to one of seven IP regulatory bodies (RPBs).
Simmons & Simmons’ Alan Gar argues that SIP 16 is working: ‘Cases of non-compliance are dropping,’ he says. ‘The great majority of IPs are substantively complying with SIP 16 and only a very small number of cases are serious enough to merit a referral to the regulatory body.’ Also, sales to connected parties have declined from 79% in 2009 to 72% in 2010 and Gar sees a ‘correlation’ between this fall and the introduction of SIP 16.
Creditors are more cautious about SIP 16. Euler Hermes’ Richard Barnett says there are two main problems with it. First, SIP 16 is an ‘after-the-event’ disclosure: ‘It is very difficult for trade creditors to take any sort of action once the dust is settled.’
Barnett also questions why only 13 of the 136 non-compliant cases resulted in disciplinary referrals. ‘So we query whether SIP 16 is being enforced strongly enough by the IS.’ Barnett would like to see the disclosure requirements in SIP 16 given statutory force, with penalties for non-compliance. That proposal was in the government consultation, but did not make it into the draft rules.
The other two key provisions in the draft rules were for administrators to file a disclosure similar to the Statement of Insolvency Practice (SIP) 16 (see box) at Companies House and to confirm in their ‘consent to act’ document that any pre-agreed sale price represents the ‘best value’ for creditors.
The first requirement appears uncontroversial. But there are concerns among IPs that disclosing the sale price at such an early stage in the process would make negotiations with interested parties difficult. Begbies Traynor’s Palmer says: ‘By disclosing the proposed sale price at that point I would be giving my hand away. I would be saying "I think this is what this business is worth" during confidential discussions with interested parties.’
For Glover’s Gilks the government’s proposals, including the three-day notice period, do not appear ‘onerous’. Legislation would give pre-packs ‘statutory credibility’, says Gilks, adding: ‘It might bring pre-packs out of the shadows and into everyday normal restructuring transactions.’
But R3’s Coulson maintains that ‘in this dreadful economic climate with no signs of getting better it is the worst time really to tie practitioners’ hands behind their backs and prevent them from having this useful tool in their toolbox.’
Coulson argues that detractors need to recognise that pre-pack is just ‘one stage in the story’. It is one of the possible outcomes in the administration process - which has a statutory period of 12 months - including the liquidation of the company and possible legal action against directors by creditors. ‘Of course people just see that instant snapshot and they react badly to it,’ she says.
The changes might also lead to unintended consequences. Begbies Traynor’s Palmer says: ‘I think the impact would be less successful rescues. Worryingly, I think it would open the door to unlicensed and unregulated advisers to go in and advise companies on how it might be better for them just to do a company sale without going through a proper insolvency procedure.’
She adds: ‘At least the insolvency procedure does flush out any wrongdoing on the part of the directors.’ IPs are required to report to the IS if they believe a company director has behaved in a dishonest or blameworthy way, thereby making the company’s financial distress worse. This can lead to disqualification proceedings.
Besides, in its focus on pre-packs, the government might actually be overlooking other causes of disgruntlement among creditors.
According to R3, which represents over 97% of the UK’s IPs, the number of cases of alleged misconduct by directors reported by R3 members to the IS increased from 3,394 in 2003/4 to 7,030 in 2009/10. But the proportion of these cases investigated by the IS has halved, from 40% in 2003/4 to 20% in 2009/10. This suggests there might be a growing problem of misconduct among company directors that is not being adequately addressed. Says Palmer: ‘The IS is undergoing cuts and we need to ensure that [it is] properly funded.’
As the government mulls its next moves over pre-packs, trading conditions for companies are deteriorating further. The stakes are high. Many stakeholders clearly feel that it’s a case of ‘it ain’t broke don’t fix it’ - and of pursuing a more holistic strategy to tackle creditors’ concerns.
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Association of Business Recovery Professionals