Pre-packs: a change for change’s sake?

The new proposed legislation on pre-packaged sales in administration and liquidation - “the three days’ notice rule” - now appears unstoppable and will be on the statute book this autumn, explains CBW’s Carl Bowles.

This follows two consultations, both this year and last, with the insolvency profession and stakeholders. The clear and laudable aim of the legislators is to achieve greater transparency in the procedure, and address the perception of ‘phoenixism’ – the sale of the business to the company’s existing management, which can act to the disadvantage of unsecured creditors.

A pre-packaged sale (pre-pack) is an agreement for the sale of an insolvent company’s business and assets which is put in place before the company goes into a formal insolvency process, usually administration. Statement of Insolvency Practice 16 requires this to be fully justified - to be in the best interest of creditors as a whole - by an administrator in a report to creditors explaining his actions within 14 days of his appointment. There is an express statutory remedy pursuant to the misfeasance provisions of the Insolvency Act 1986 should an administrator or liquidator (office holder) sell assets at an undervalue.

Continued...