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The Government has announced that new rules will be brought into legislation as soon as possible. The following was announced;
‘Stricter independent scrutiny on pre-pack sales where connected parties - such as the insolvent company’s existing directors or shareholders - are involved
Improved transparency during pre-pack sales, ensuring the general public and creditors’ interests are protected
The move will increase confidence in the insolvency regime, helping to protect jobs and support the economy
New laws will require mandatory independent scrutiny of pre-pack administration sales where connected parties - such as the insolvent company’s existing directors or shareholders - are involved in the purchase, the government has announced today.
The new laws will improve confidence and transparency in pre-pack administration sales, giving the general public and creditors reassurance that their interests are being protected alongside that of the distressed business.
Pre-pack administrations involve arrangements to sell part or the whole of a company’s business or assets prior to the company entering into administration.
The sale is completed on or shortly after the appointment of an administrator and the speed of the transaction helps preserve the value of the business while saving jobs.
Pre-pack administration sales are widely considered to be a valuable rescue tool. However, concerns have been raised that arrangements may not always be in the best interests of creditors. For example, where the sale is made to a connected party, such as the company’s directors or shareholders.
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.’
Clearly, we will wait to see the detail brought forward in the legislation but it seems sensible to improve confidence in these types of sale and an independent review of these types of sales will hopeful do that.
The current COVID crisis is likely to see an increase in insolvencies and so we welcome these changes.
As always Directors who are in difficult circumstances should take advice at an early stage as any proposed pre-pack sale take time to put in place and this announcement will only increase that time requirement. If you require any further information, please contact us for a free and confidential discussion.
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