Pre-pack administration deals to come under scrutiny
The UK Government has announced new measures to improve transparency within one of retail’s most controversial rescue tools, the pre-pack administration.
Available to struggling retailers, the procedure allows investors to buy part or the whole of the business prior to the firm entering into administration.
This year, this insolvency solution has been used by national chains including Monsoon Accessorize and Quiz to preserve the value of their businesses and save jobs.
But critics have complained that arrangements may not always be in the best interests of creditors, especially when the deal involves a connected party such as the company’s directors or shareholders.
The new law will require mandatory independent scrutiny of pre-pack administration sales where connected parties are involved in the purchase. In addition to improving transparency, the move will give creditors reassurance that their interests are being protected alongside that of the distressed business, the Government said.
Lord Callanan, minister for corporate responsibility, said: “Pre-pack sales play an important role in rescuing viable businesses, while protecting jobs and supporting our economy.
“As we continue to tackle Covid-19, it is more important now than ever that people have confidence in the insolvency process.”
Commenting on the announcement, Ion Fletcher, director of finance policy at the British Property Federation, said: “We support the Insolvency Service’s proposed measures to require independent scrutiny of sales in administration to a connected person. This will provide much-needed transparency and provide reassurance that a sale has been completed in a fair manner.”
How mandatory scrutiny will be enforced is still unclear, with the Government saying it will provide further details in due course.
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