Reforms to 'Pre-pack administrations' of companies delayed

Provisions effecting an overhaul of ‘pre-pack administrations’, which allow struggling businesses to be marketed prior to entering into administration and sold shortly thereafter, have been delayed.

Pre-pack administrations have proven controversial, particularly because they allow a company to be sold back to the directors or previous owners. The overhaul was intended to address this controversy and make the system more transparent.

The proposals include allowing creditors three days to oppose the insolvency process. Minister Ed Davey had said of the proposed reforms “in order to inject greater transparency into the process we intend to require administrators to give notice to creditors where they propose to sell a significant proportion of the assets of a company or its business to a connected party, in circumstances where there has been no open marketing of the assets. This will enable creditors to express concerns, which the administrator would need to consider or, where the circumstances justify it, apply to the court to prevent the sale from taking place.”

However some commentators had argued that the speed of the process was vital in order to protect the value of the company. A spokesperson for the Insolvency Service, an executive agency of the Department for Business, Innovation and Skills said: “Following discussions with stakeholders, amendments are being made to the Statutory Instrument (SI) by our lawyers. The SI will not be coming into force by the end of this year and we are now aiming for next year. We have endeavoured to take note of representations from all sides of the debate.”

By commercial solicitor and Stephensons’ Partner, Jonathan Chadwick

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