The Insolvency Service has announced the government is to assess the impact of the voluntary industry measures introduced in November 2015 to improve the transparency of connected party pre-pack sales in administration, and will be contacting a variety of interested parties to seek their views
The industry measures arose from the recommendations of the 2014 independent Graham review, which found that pre-pack sales were a useful business rescue tool, but that there was evidence of less successful outcomes where the pre-pack sale was to a connected party.
As well as industry reforms, the Small Business, Enterprise and Employment Act 2015 created a power for government to make regulations to impose conditions on property sales to connected parties in administration (including via a pre-pack). This power expires in May 2020.
The planned assessment will look at the impact of reforms on all connected party sales in administration and will help to inform decisions on whether further regulation is needed prior to the expiration of the regulation making power.
Duncan Swift, deputy vice president at insolvency and restructuring trade body R3, said the review was expected and provided ‘a good opportunity to examine the role pre-pack administrations play in the UK’s business rescue landscape’ in the run up to the 2020 deadline.
‘The insolvency and restructuring profession understands the frustrations that exist with pre-packs, but to lose the ability to make a sale to a connected party would have a serious impact on business rescue in the UK. However, this does not mean there is no room for continued improvement on pre-packs.
‘Pre-packs are a valuable business and job rescue tool and are beneficial to creditors, but, to work properly, pre-packs must have the confidence of all stakeholders,’ he said.
Swift said that two years on from the Graham reforms, it was clear that some elements have worked better than others, singling out the new rules of valuations and marketing for potentially pre-packed businesses as having gone down well.
‘Other, more visible, aspects of the reforms may still need some work. The volume of referrals to the pre-pack pool by connected party purchasers has been disappointing, for example. The government should look at making referral to the pool mandatory for connected party purchasers, while insolvency practitioners should be allowed to provide information to the pool to make sure reviewers have the complete picture when assessing a pre-pack deal,’ Swift said.
Report by Pat Sweet
