UK Pre-Pack Regulations – mandatory controls approved

The new Pre-Pack Regulations have been approved by the UK Parliament and are due to come into effect on 30 April 2021 for administrations commencing from then.

As we've covered previously, the new regulations require mandatory scrutiny of administration sales to connected parties (such as the insolvent company's existing directors or shareholders) which take place within the first eight weeks of the administration. The regulations require either creditor consent for sales to connected parties or that connected parties obtain an independent opinion in relation to such sales from an "evaluator".

What's changed?

The Regulations have been amended only slightly since the October 2020 consultation and not to the extent that many in the insolvency industry had hoped. One of the main criticisms of the draft Regulations was that the requirements around the qualification of the evaluator were very light. All that was required of an evaluator is that they be independent from the administrator and purchaser, and believe that they have the "requisite knowledge and experience" to provide the report.

There is now an additional requirement that an evaluator should have adequate professional indemnity insurance in place. An individual fulfilling this role will, therefore, have to be involved in the provision of professional services to qualify to act. There are also new provisions in the Regulations designed to discourage purchasers from obtaining multiple reports in the hope that one will be favourable.

It remains to be seen who will fulfil the evaluator role in practice, and how the additional costs and delay in obtaining the evaluator's opinion will impact pre-pack sales, which are often time critical. Crucially, will the regulations increase stakeholder confidence and transparency in pre-pack sales to connected parties and preserve what is generally viewed as a valuable tool for business rescue?