Pre-Pack Sales of Businesses From Administrations
New regulations will add to the expense of many so-called “pre-pack” sales of businesses from administrations, but will hopefully not overly fetter the valuable use of this tool in saving insolvent businesses and jobs. The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 (“the Regulations”) came into force at the end of April 2021.
Blake-Turner have on many occasions assisted directors, companies and administrators in relation to sales of insolvent businesses from administration to new companies set up by the old directors or owners of the insolvent company. Provided the best possible value has been obtained for the assets, sales from administrations are crucial because the process moves very quickly and often leads to the saving of the business and jobs, and the payment of crucial trade suppliers – and greater value is recovered to be distributed to creditors of the old company.
These so called “pre-pack” sales have been criticised, but often by politicians and observers who have no experience of being on the ground as a business fails.
The Regulations are seeking to make the process more accountable by requiring the buyer of a business from administration – if he was a director or other stakeholder in the insolvent business – to obtain a report from an independent evaluator. This report will essentially be required to confirm that the terms of the proposed sale are reasonable in the circumstances.
This is of course a rather low threshold to meet, and therefore it will hopefully not curb the use of sales from administrations in the first 8 weeks of the administration. It will, however, of course add to the expense in many instances and delay matters at a time when speed is essential to save goodwill and jobs. It is hoped that this will not make some sales from administration at the lower end of the market unviable, but allow the practice to continue simply with another layer of welcome accountability (and less welcome expense).
If you have any questions about pre-pack sales from administration, or insolvency, please contact Paul Cooper, a partner with over 20 years’ experience in assisting insolvent companies, their creditors and their stakeholders.