Pre-pack sales to face mandatory independent scrutiny in UK; govt puts out draft rules
The UK government has put out draft regulations in Parliament which implement the requirement for mandatory independent scrutiny of pre-pack sales, where connected parties are involved in the purchase. The regulations will come into effect once they have been debated and passed in both Houses of Parliament.
New regulations 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 announced recently.
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.”
The minister added that the 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.
The Government will introduce regulations into Parliament in due course. The legislation will apply to England, Scotland and Wales. Insolvency matters are devolved in Northern Ireland.
Further details on how mandatory scrutiny will be enforced will be provided in due course.
The power to regulate connected party sales in administration in Section 129 of the Small Business, Enterprise and Employment Act 2015 lapsed in May 2020. It was revived by the Corporate Insolvency and Governance Act 2020, giving the Government powers to introduce regulation via affirmative secondary legislation.
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