Some pre-packaged administrations attract adverse publicity based on creditor unease that business owners have been able to do what appears to be a cosy deal and restart a business debt free.  Nevertheless pre-packs can be a useful tool to preserve value in a potentially viable business, help retain employment and provide a swift and better outcome for creditors.

However, recently introduced updates to the legislation around pre-packs entitled ‘Regulation of Pre-Packs The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 which came into force from 30 April 2021 imposes tougher controls on pre-pack sales which are likely to leave connected party pre-pack sales full of difficulties.

The new regime states administrators cannot make a substantial disposal of the company’s business to connected parties (directors or shareholders) in the first eight weeks of the administration period unless;

• The creditors approve the transaction, or
• They have a qualifying report from a qualified independent ‘evaluator’

A sale out of administration requires that the qualifying report is commissioned by the proposed buyer and made by an ‘evaluator’.  The report will detail the qualifications, knowledge, experience and insurance cover of the evaluator and identify the assets being sold, the consideration being provided, details of the connected person and the nature of their connection to the company.  It will also include a statement as to whether or not the evaluator is satisfied that the consideration to be provided and the grounds for the disposal are reasonable in the circumstances.