Insolvency: New pre-pack administration sales may require independent scrutiny

Pre-pack administration sales may require independent scrutiny where connected parties are involved, it has been announced.

The draft regulations, found here, come after concerns that some pre-pack sales do not protect the interests of creditors.

A pre-pack administration is a type of insolvency procedure involving the sale of all or part of a company’s business and assets before an insolvency practitioner is appointed.

In almost all cases, the process is carried out to ensure business continuity and protect jobs and the value of the business.

But they have increasingly come under the spotlight of the media in recent years after several high-profile sales involved connected parties – such as the insolvent company’s existing directors or shareholders.

To increase confidence and transparency in the process, the Government said it will require “mandatory independent scrutiny” of pre-pack administration sales where connected parties are involved in the purchase to ensure creditors are getting the best deal.

Commenting on the new rules, Minister for Corporate Responsibility Lord Callanan said: “Pre-pack sales play an important role in rescuing viable businesses, while protecting jobs and supporting our economy. As we continue to tackle Covid-19, it is more important now than ever that people have confidence in the insolvency process.

“This new law will ensure all sales to connected parties are properly scrutinized – protecting the interests of creditors and the general public, as well as the distressed company.”

Colin Haig, President of insolvency and restructuring trade body R3, added: “The insolvency and restructuring profession is very sensitive to the impact of pre-packs on creditors, and there is a careful balance to strike in these situations between transparency, protecting creditor value, and business rescue, which these proposals support.”

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