- The Insolvency Service has proposed the adoption of new legislation which will prohibit sales by companies in administration to connected parties within eight weeks of the start of the administration unless either the proposed sale is approved by the company’s creditors as part of the approval of the administrator’s proposals or an independent report has been obtained by the connected party purchaser.
- Draft regulations have been published and the Government intends to lay these before Parliament as soon as Parliamentary time permits but there is no specific timeframe at the moment (although the power under the Insolvency Act 1986 ("IA86") to bring in the regulations will expire in June 2021). Whilst the creditor approval route seems difficult to operate in the context of accelerated sales, a requirement for mandatory independent reporting provides an extra layer of scrutiny and protection for creditors, and should go some way to addressing concerns around connected party pre-packs.
- Whether the measures go far enough to satisfy the harshest opponents of pre-packs remains to be seen; we will need to wait for further guidance and for market practice to develop before a proper assessment can be made and some of the key questions raised by the proposals can be answered.
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Authored by James Maltby and Naomi Parmar.