Is the new legislation for Pre-Pack Administrations a Game Changer?

Insolvency Practitioner Stephen Evans suggests the reforms are a step in the right direction but are not the complete answer.

In March 2021, we wrote a piece about whether the new legislation coming in for pre-pack administrations will inspire confidence in the procedure. Overall, our thoughts were that the legislation was unlikely to deliver all of its objectives. Now, with the new legislation coming into force on 30th April 2021, one of our insolvency practitioners, Stephen Evans, comments further on the changes.

Stephen comments:

Pre-pack Administrations have always been divisive as they have been seen as a shortcut to jettison unwanted debt by unscrupulous directors and shareholders. The new Regulations – which propose mandatory scrutiny of pre-packs by independent evaluators where connected parties are involved – are a step in the right direction to assist, but not the complete answer.”

“There is definitely some cause for concern in some quarters about pre-packs, and the press is full of stories about them. often where a business has been bought for £1, but such reporting does not always tell the whole story. At Antony Batty & Company we always look objectively at every option for a business in distress. After all Pre-pack Administrations stem from an Administration – a rescue procedure and not a closing down procedure.”

Used properly, Pre-Pack Administrations help save distressed businesses.

“What can get forgotten is that if used properly, pre-pack administrations can save a business (albeit usually at a reduced size). Jobs will have been saved, and suppliers can carry on supplying goods and services (if they wish to continue to do so), whereas when a business fails and closes down, suppliers have holes in their turnover which they will have to fill if they want to just maintain current turnover. Pre-packs help avoid that scenario. The pre-pack itself should also provide the best return for creditors in the Administration as more often than not the goodwill element of the business has been preserved by its quick action.”

So, what is the main problem with the new regulations?

“Unfortunately the main problem with the new regulations is that you have to either wait for creditors to approve the sale; for the independent evaluator to make his report; or for eight weeks to pass. All of these will reduce the amount you can realise for the goodwill and at the same time begs the question of who is going to pay for this delay in the form of a reduced level of dividend? The answer of course is the creditors, whose interests we, as insolvency practitioners are duty bound to protect.”

Contact us for advice on Pre-Pack Administrations

If your company is facing dissolution / collapse from debt, HMRC arrears, cashflow or other financial problems and you have exhausted all possible funding issues (perhaps because your key lenders are not willing to support you) then please do contact us for a fully confidential, and FREE, initial discussion at any of our offices, below. It might well be that a pre-pack administration is the best option to save your company.

Antony Batty & Company offices:

Also K&W Recovery, trading as Antony Batty and Company, Thames Valley: