Changes to Pre-Pack Administrations

Pre-packs are a popular rescue mechanism, but have long been subject to criticism, with concerns raised as to the transparency, and whether a pre-packed sale is always in creditors best interests.

Last month the UK government announced plans to introduce new legislation requiring mandatory independent scrutiny of the pre-pack administration processes, where connected parties, in particular the insolvent company’s existing directors and/or shareholders are involved in that sale transaction.

As the name would suggest, a pre-pack administration involves arrangements to sell part or all of the company’s business and/or assets prior to the relevant company entering into administration. The sale is then completed on, or shortly after, the appointment of the administrator.

Powers to introduce legislation to regulate connected party pre-packed sales were introduced by the Small Business, Enterprise and Employment Act 2015, although these powers lapsed in May 2020, they were revived by the Corporate Insolvency and Governance Act 2020. That being the case, it is expected that new legislation when will be introduced as soon as Parliamentary time allows, but certainly before the June 2021 deadline.

It is of course expected that the COVID pandemic will expedite such transactions in the months ahead.