Pre-pack administrations involving people connected to the insolvent company are set to come under greater scrutiny in a bid to make the process more transparent.
Pre-pack sales where connected parties, such as the insolvent company’s shareholders or directors, are involved in the process will be required by law to undergo independent scrutiny, the government announced today.
Pre-pack sales – an insolvency procedure in which the sale of all or part of a company is agreed before it enters administration – are considered a valuable tool for rescuing insolvent firms, however concerns have been raised that the deals are not always in the best interests of the insolvent company’s creditors.
“Pre-pack sales play an important role in rescuing viable businesses, while protecting jobs and supporting our economy,” said Lord Callanan, minister for corporate responsibility.
“As we continue to tackle Covid-19, it is more important now than ever that people have confidence in the insolvency process,” he continued.
“This new law will ensure all sales to connected parties are properly scrutinized — protecting the interests of creditors and the general public, as well as the distressed company,” Lord Callanan said.
The government has not yet announced how mandatory scrutiny on the deals will be enforced.
Restructuring firms are expecting a wave of insolvencies as government schemes to support jobs and businesses begin to come to an end, or are replaced with less generous measures.
The hospitality industry has been hit especially hard by Covid-19, with many pubs, bars and restaurants struggling to stay afloat following the introduction of a 10pm curfew on hospitality venues.
A survey released earlier this week showed that almost three quarters of hospitality and leisure businesses based in London are considering restructuring or launching insolvency proceedings as a result of the pandemic.
British Property Federation director of finance policy Ion Fletcher said his organisation supported the government’s plans.
“This will provide much-needed transparency and provide reassurance that a sale has been completed in a fair manner.”