The UK government has published new draft regulations to require mandatory scrutiny of administration sales to connected parties (such as the insolvent company’s existing directors or shareholders).
In the UK, a "pre-pack" is an arrangement under which the sale of all or part of a company’s business or assets is agreed with a purchaser prior to the appointment of administrators. The sale is carried out by the administrators immediately on, or shortly after, their appointment. Administrators must be licensed insolvency practitioners.
Key points you should be aware of
- The new regulations will apply not only to pre-pack administration sales but also to all connected party sales within the first eight weeks of the administration.
- The definition of connected person in the draft regulations is broad and doesn't expressly exclude sales to lenders who hold security for the granting of a loan (with related voting rights) over more than one third of the company's shares. This may be an oversight that will be corrected in the final version.
- The regulations require either creditor consent for sales to connected parties or that connected parties obtain an independent opinion in relation to such sales from an "evaluator".
- The requirements as to qualification of the evaluator seem very light requiring only that the individual believes that they have the "requisite knowledge and experience" to provide the report.
- The government plans to enact the regulations as soon as Parliamentary time allows, and in any event before the end of June 2021.