There has been much criticism about Pre-Pack Administrations and as a result of this criticism, a new body has been set up to review all Pre-Pack Administration deals, starting in September. However, this new body is unlikely to be in a position to take cases until October.
A Pre-Pack Administration sale is a legal mechanism to sell a business to a third party or in fact to allow the current directors to shed their liabilities from the old business and to operate under a new company. This usually happens when there is the threat of a winding up order or the business is insolvent and may go into administration.
There has been criticism around the fact that directors are able to protect their business from administration and then set up a new company, effectively getting rid of their debts and liabilities. In addition, creditors are usually excluded from the process until it is done.
The new Pre-Pack Pool will aim to ensure that the process of pre-pack administration becomes more transparent and fairer for everyone involved in the process, including the creditors.
Last year, over a quarter of all companies that went in administration were subject to pre-pack arrangements so this does have a significant impact in the market.
There are limitations of the new Pre-Pack Pool though as only Pre-Pack Administrations with a connected party involved will be scrutinised. A connected party is someone like a director of the previously insolvent business. Anyone reviewing deals in the Pre-Pack Pool will only have half a day allocated to the review of the new deal and there are concerns that this will not be enough time to read and consider all documentation connected with the deal.
These are voluntary changes being made to ensure that everyone involved in the process avoids regulation and statutory rules being imposed, but if these changes do not help to reduce the controversy around Pre-Pack Administrations, regulatory changes may follow.
If you would like more information about how the new Pre Pack Pool will affect you and your business if you are facing insolvency, please do get in touch with our legal team today. You can call us on 020 7480 5861 or email us on firstname.lastname@example.org and we’ll be in touch with you shortly.