New rules on compulsory scrutiny for pre-pack administration

The Government has announced that mandatory independent scrutiny of pre-pack administration sales will be required where connected parties are involved in the purchase.

The new laws, announced on 8 October, are intended to improve the transparency of pre-pack sales and ensure that “the general public and creditors’ interests are protected”.

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.

Recent reports, however, have suggested that pre-pack administrations “may not always be in the best interests of creditors” by selling assets to connected parties, such as the company’s directors or shareholders.

To protect creditors, the new legislation will require that pre-pack administration sales where connected parties are involved are subject to independent scrutiny.

The Government said this will “improve confidence and transparency in pre-pack administration sales”, giving stakeholders “reassurance that their interests are being protected alongside that of the distressed business”.

Welcoming the new rules, Colin Haig, President of insolvency and restructuring trade body R3, said: “Pre-pack administration sales involving connected parties are an important rescue tool as they are often the best way of preserving a business and ensuring maximum returns to creditors.

“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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Maung Aye
Maung is a partner in our Corporate and Commercial department. He joined Mackrell.Solicitors following corporate law positions in London and in a leading regional firm in Essex. Maung read European Legal Studies at Lancaster University and the Università degli Studi di Trento and is a fluent Italian speaker.