Insolvency experts issue warning over new Government legislation

New insolvency laws introducing mandatory independent scrutiny of pre-pack administration sales to connected parties could go further to inspire confidence, warns the Midlands branch of insolvency and restructuring trade body R3.

The new legislation, which takes effect from the end of this month, aims to bring greater transparency to the pre-pack process, but R3 Midlands believes that the Government should do more to ensure that the reforms do not miss the mark.

A pre-pack is where the sale of a company's business and/or assets is arranged before the start of an insolvency procedure, then completed immediately or shortly after the procedure begins.

The aim is to maximise what can be repaid to an insolvent company's creditors by obtaining the maximum sale price. Pre-pack administrations are overseen by a licensed insolvency practitioner and are often used by companies to preserve jobs and rescue potentially viable businesses.

R3 Midlands chair Eddie Williams (pictured), a partner at PwC in Birmingham, said: “The new legislation includes the introduction of an Evaluator to review pre-pack proposals, a move which is broadly supported by R3.

“However, the practicalities around ensuring that an Evaluator is a fit and proper person are where these new regulations will be tested significantly.

“The reforms leave it to the market to regulate the Evaluator position, while a better alternative would be for the Government to agree to maintain a list of approved Evaluators.

“This would generate an additional administrative burden, but it would give stakeholders greater confidence that these reforms are robust rather than just the easiest option for the Government. ”