Everything you need to know about the changes
Pre pack administration is a really useful tool for insolvency professionals like us to help companies get back on their feet and trading again quicker than in a regular administration process.
It’s a well established procedure that allows the administrator of a business to sell it and its assets to new owners as soon as possible – including in some cases just after they formally enter insolvency – with all the preliminary and preparatory work for the sale having already been completed.
It provides peace-of-mind for creditors and staff and allows a smooth and seamless transition between ownerships with a minimum of fuss.
You’ve probably read articles proclaiming that it’s a wonderful new innovation that will revolutionise the insolvency industry but in reality, it’s something we’ve been doing for years.
So we’re always interested when a genuinely new development comes along – although again, it might only be new depending on who you ask.
The government have just announced that they will be bringing forward new laws to make independent scrutiny of pre-pack sales mandatory – when “connected parties” are involved in the process.
A connected party can be anybody with a previous interest in the company being sold including directors, shareholders, employees or anybody related to them.
This happens occasionally in pre pack deals if existing managers want to take over the company themselves or if previous directors want to come back and buy the business outright.
Speaking about the changes, Lord Callanan, the minister for Corporate Responsibility, 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.”
Prepack administration has a lot of advantages
Chris Horner, Insolvency Director with BusinessRescueExpert, agrees. He said: “Getting a qualified valuer to report on the sale and put their professional opinion in writing is a good way of providing transparency, clarity and trust.
“Which is why we already do it and we’ve always done it!”
R3, the insolvency and restructuring trade body, have gone even further. Colin Haig, the current President, said: “While the amended regulations are an improvement, there’s still some way to go if these reforms are going to improve stakeholder confidence in pre pack administrations.
“In particular, there’s no framework in place to ensure qualifying criteria for the Evaluator position are being met. A new requirement for an Evaluator to have professional indemnity insurance won’t be enough on its own to secure confidence.
The role is to give stakeholders greater confidence that connected party pre packs are legitimate so not only does an Evaluator need to be “above board” but they need to have relevant business experience to give their opinion.
“One potential solution is for the government to maintain a list of all approved Evaluators. It’s the only way to ensure they’re suitably qualified and have the relevant experience to carry out the role.”
Get in touch with us if you want to know more about pre pack administrations or any other aspect of insolvency or business recovery.
Whether it’s new legislation and rules that could affect your company or any existing opportunities that could benefit your business right now – we’ll be able to talk them through with you and how you can take advantage.
Rules come and laws go but one thing is always central to our ethos – a desire and ability to give businesses respite while they recover and rebuild to be even stronger than before.
There’s no law against that.