The government has published its pre-pack legislation which will require a mandatory independent opinion on all pre-pack sales in administration to a connected party.
Subject to approval by both Houses of Parliament, the regulations will be coming into force on 30 April 2021, applying to administrations commencing on or after this date.
The background on “pre-pack” administrations and the leading up to the regulations were explored in our previous article on Pre-Pack Administration Reform.
The New Pre-Pack Regulations
The regulations will prevent an administrator from executing a pre-pack if all of the following apply:
- The sale (or other forms of disposal, including hiring out) is of all or a substantial part of the insolvent company’s business or assets.
- It is within the first eight weeks of an administration.
- The disposal is to one or more persons connected with the company.
- Either the administrator has not obtained the approval of creditors for the disposal or the purchaser has not obtained and provided a “qualifying report” of an evaluator in respect of that disposal.
Consequences of the Regulations
The qualifying report need not itself be in favour of the pre-pack but must, in any event, be sent to the Companies Registrar and to all creditors. If the report is negative, the administrator must also provide reasons as to why they still wish to proceed. The Regulations will include provisions whereby purchasers are discouraged from obtaining multiple reports.
The Regulations now provide for the evaluator to be independent and to hold professional indemnity insurance, but evaluators are not required to have any professional qualifications, which has led to much scrutiny of the Regulations. There is no provision in the Regulations as to the fees which may be charged, however, the purchaser of a pre-pack sale would ultimately bear these costs.
There are also concerns that the Regulations will still catch disposals that are negotiated after the start of the administration, however, the likelihood of further amendments to the Regulations being accepted is uncertain at this time.
It will certainly be interesting to see the impact this has on both the volume of and nature of pre-pack sales following the implementation of the Regulations.
The Regulations can be found here: The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 (legislation.gov.uk)
Posted on March 30, 2021