Have Pre-Pack Admins just been outlawed?

On the 30 April 2021, new regulations were introduced by the Insolvency Service relating to the Pre-Pack Administration sales to connected parties.

The requirement is for mandatory independent scrutiny of any such sales where connected parties are involved and taking place within eight weeks of the administration.

Pre-Pack Administrations have regularly been criticised for the appearance of selling off the company business and assets to the company directors at significant undervalue. The counter position is that the former directors are probably best placed to make the best offer.

In recent times, there has been the opportunity to voluntarily refer proposed Pre-Pack sale to the “Pre-Pack Pool”, but this has not been utilised as fully as the Insolvency Service would have hoped for, hence the new legislation. 

However, the Insolvency Service has introduced this legislation to attempt to deal with “interested parties” concerns and at a time before Government COVID-19 support is withdrawn and with that the expected increase in insolvencies.

The new legislation requires any sales involving connected parties and taking place within eight weeks of the Administration, to either obtain creditor approval of the transaction or seek the view of an independent third party, “The Evaluator”, to the transaction.

The evaluator will consider the transaction and report either that the case is made for the sale or that the case is not made. This will be based upon the considerations and grounds for the sale. Interestingly, the Administrator can still proceed with the sale even if the evaluator reports the case is not made, but they will be required to explain why they have proceeded.

There are no specific qualifications that an evaluator requires but they must be independent, hold PII cover and be satisfied themselves that they have the necessary knowledge and experience to review the proposed transaction.   

The objective of the legislation is to provide transparency and hopefully realise improved values.

The Insolvency Service will be monitoring future Pre-Pack Admin sales and have advised that they will amend the legislation, if it is found not to work as planned.

So, only time will tell if this is the end of Pre-Pack Admins as we know them.     

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Andrew Kelsall