Pre-pack Administration sales, or Pre-packs, are a useful tool for rescuing a company in financial difficulty. However, in response to heavy criticism of pre-packs by many, in particular unpaid unsecured creditors, the government has introduced new legislation that places restrictions on the disposal of property by administrators, together with other conditions and requirements. These in effect create further hurdles for directors and owners of businesses who may have hoped to buy their debt freed business back out of insolvency.

The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 will come into force on 30 April 2021 and will apply in England, Scotland and Wales. The Northern Ireland Assembly’s Committee for the Economy considered similar provisions, The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations (Northern Ireland) 2021, on 14 April 2021.

Fundamental amongst the restrictions and conditions in the legislation is the mandatory eight-week window in which the assets of an insolvent business cannot be sold to a “connected party” without the consent of creditors or a report from an independent evaluator, who is appointed by the connected party.

The definition of connected person is already contained in Schedule B1 of the Insolvency Act 1986 and includes the directors, shadow directors, non-employee associates of those directors, non-employee associates of the company, or a company that shares such an officer with the debtor company.

The full legislation can be viewed here.

If you, as a creditor, or as a company considering its options, are affected by any of these issues or require insolvency advice and assistance generally please contact our Debt Recovery & Insolvency team to discuss.