Regulation of Pre-Pack Sales to Connected Parties

Oct 12, 2020

The UK Government has announced its intention to use the power in the Corporate Insolvency and Governance Act 2020 to require independent scrutiny of pre-pack sales in administration to connected parties.

The Pre-Pack Sales in Administration Report sets out the findings and recommendations of a review of pre-packs carried out by Government primarily focussing on whether or not to regulate or ban sales in administrations to connected persons.

Published with this report are the draft regulations , which Government intends to lay before Parliament. A summary of the proposed regulatory framework is set out below:

  • The regulations will apply where there is a disposal in administration of all or a substantial part of a company’s assets.
  • An administrator will be unable to dispose of property of a company to a person connected with the company within the first eight weeks of the administration without either the approval of creditors or an independent written opinion. The connected party purchaser will be required to obtain the written opinion.
  • The provider of the opinion must be independent of the connected party purchaser, the company and the administrator and must meet certain eligibility requirements.
  • The administrator must have no reason to believe that the opinion provider is not independent of the connected party or does not meet the eligibility requirements.
  • The opinion provider will provide a written report to state that either the case is made for the disposal or that the case is not made.
  • A connected party purchaser may obtain more than one report.
  • An administrator must consider a report from an opinion provider.
  • Where a report states that the case is not made for the disposal, an administrator can still proceed with the disposal but will be required to provide a statement setting out the reasons for doing so.
  • An administrator will be required to send a copy of the report(s) to creditors of the company and to Companies House.