New regulations requiring the mandatory independent scrutiny of pre-pack administration sales have come into force this month, it has been confirmed.
The new laws come after concerns that some pre-pack sales involving “connected parties” did 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. The process is carried out to ensure business continuity and protect jobs and the value of the business.
But critics say pre-pack administration sales involving connected parties – such as the insolvent company’s existing directors or shareholders – do not always “strike the right balance” between transparency, protecting creditor value, and business rescue.
Under the new rules, restrictions will be placed on the disposal of a company’s business or assets to a connected person during the first eight weeks of administration.
Welcoming the measure, Colin Haig, President of insolvency and restructuring trade body R3, said: “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.”
Ion Fletcher, Director of Finance Policy, British Property Federation, added: “We support the Insolvency Service’s proposed measures to require independent scrutiny of sales in administration to a connected person. This will provide much-needed transparency and provide reassurance that a sale has been completed in a fair manner.”
To learn more about the new rules – which came into effect on 30 April 2021 – please click here.
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