Updated: 5th February 2020
Connected pre-pack administration processes in the UK are set to be overseen by independent business experts in order to provide extra assurances about their fairness.
Deals involving the sale of businesses from administration to parties already associated with that business will now be scrutinised in greater depth by a pool of relevant experts who will be called upon to assess the details of the pre-pack case itself.
The creation of a system, through which insolvency practitioners can ask for the input of independent parties, has been brought about in response to a recent government-backed review of the UK’s pre-pack administration process.
Concerns were raised by Teresa Graham, who led the state-commissioned inquiry into the subject, that creditors often lack confidence that pre-pack processes protect their interests in the context of an indebted and insolvent company entering administration with debts to pay. The report was commissioned by Vince Cable, the Secretary of State for Business Innovation and Skills, as part of the Government’s wider ‘Transparency and Trust’ agenda.
On the basis of Graham’s recommendations, a system involving ‘pre-pack pools’ has been established with independent experts now set to oversee processes in which any party connected to the insolvent company has pre-planned to acquire a business out of administration.
Duncan Grubb from Pre-Pack Pool Limited, whose organisation is responsible for establishing the pool of administration overseers in the UK, said: “The reforms strike a balance between transparency and the discretion needed for business and job rescue.
“While the pool is voluntary and its opinions are not binding, it will reassure creditors about the reasonableness of the pre-pack transaction and its justification in the circumstances.”
The pre-pack pool process will work on the basis of a user paying for the services being provided on a voluntary basis at a cost of £800 plus VAT, with their opinions made available to creditors once a business sale has been completed.
The views of the pool will be presented as reflecting one of three distinct opinions, namely that either the pre-pack is not unreasonable, it is not unreasonable but there are some limitations to the evidence provided or that the case for the pre-pack has not been made.
“I am delighted that the government, insolvency profession and creditors have delivered these reforms, and I am hopeful that those contemplating a connected pre pack will make full use of the voluntary elements,” said Teresa Graham. We have an extensive network of 78 offices offering confidential director support across the UK.