Draft legislation implements requirement for “mandatory independent scrutiny” of pre-pack administration sales

February 26, 2021

New legislation will require independent scrutiny of pre-pack sales where connected parties are involved, it has been announced.

The laws form part of major insolvency reforms designed to improve transparency and protect the interests of creditors.

Laid before Parliament this month, the draft legislation will implement the requirement for “mandatory independent scrutiny” of pre-pack administration sales “where connected parties are involved in the purchase”.

A pre-pack administration is a type of insolvency procedure involving the sale of a company and its assets before appointing administrators to facilitate the transaction, speeding up the process to help preserve the value of the business while also rescuing jobs.

However, a study published last year found that pre-pack administrations “may not always be in the best interests of creditors” where sales include transactions between company directors and shareholders.

Minister for Corporate Responsibility Lord Callanan said the new laws will “improve confidence and transparency” in pre-pack administration sales and ensure creditors that they are getting the best deal.

Commenting on the legislation, 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.

“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.”

Welcoming the news, Colin Haig, President of insolvency and restructuring trade body R3, added: “The insolvency and restructuring profession is very sensitive to the impact of pre-packs on creditors, and there is a careful balance to strike in these situations between transparency, protecting creditor value, and business rescue, which these proposals support.”

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