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A pre-packaged administration (a “pre-pack”) is an arrangement under which the sale of all or part of a company’s business or assets is negotiated with a purchaser prior to the appointment of the administrator, and the sale contract executed on the appointment of the administrator or very shortly afterwards.

When used appropriately, a pre-pack can be an effective company rescue procedure. Pre-packs enable the sale of company assets to be undertaken quickly (reducing the likelihood of important contracts being lost), preserving the brand and the value of the business and, ultimately, returns for creditors. However, there are concerns about the transparency of the pre-pack administration procedure, in particular:

  • where businesses are being sold to “connected parties” (i.e. directors, shareholders and others connected with the insolvent company);
  • possible conflicts of interest for the insolvency practitioner (for instance, when appointed by the floating charge-holder); and
  • a lack of involvement of unsecured creditors.

To address these concerns, a Statement of Insolvency Practice (SIP 16) was issued in January 2009 (and periodically updated), with additional measures being introduced on 31 March 2011. The current SIP 16 came into force on 1 November 2015.

Following the publication of a Select Committee report in February 2013, the Government announced in July 2013 an independent review of the pre-pack procedure. The Graham Review into Pre-Pack Administration was published in June 2014 alongside Pre-Pack Empirical Research: Characteristic and Outcome Analysis of Pre-Pack Administration by the University of Wolverhampton. Responding to Teresa Graham’s report, the Government said it would work with business and industry to implement in full her six recommendations for reform. A key recommendation was the introduction of a pool of independent experts to assess and give an opinion on a proposed pre-pack sale to a “connected party”, but only if requested to do so by the connected party. On 2 November 2015, the Pre-Pack Pool became operational.

The Small Business Enterprise and Employment Act 2015, which received Royal Assent on 26 March 2015, implemented another Graham recommendation, creating a reserve power for the Secretary of State to legislate if necessary. This wide-ranging Act also introduced a number of measures to amend various parts of the current insolvency framework and modernise insolvency law by removing unnecessary costs and regulatory burdens.

This briefing paper looks in detail at how pre-pack administrations work in practice under revised SIP 16; the “pros and cons” of the procedure; the recommendations of the Graham Review; and provides a summary of the measures introduced by the Small Business Enterprise and Employment Act 2015. This paper applies to England and Wales, and Scotland.

 


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