​Viability of UK pre-pack administration clampdown plans questioned

By

Nigel TAYLOR

Published
Oct 21, 2020

The UK’s proposed clampdown on pre-pack administrations could be at risk of abuse, according to interested parties.

 
Pre-packs involve a company being put into administration and quickly bought out by a party connected to the owner under a pre-agreed deal. The government is aiming to introduce rules that would increase scrutiny of pre-packs and improve their transparency. 
 
The move comes after a series of high-profile deals involving private equity firms and industry moguls that have left creditors facing large losses. The pandemic is expected to increase the number of companies that use re-pack to deal with some of their problems. 

House of Fraser, Monsoon Accessorize, Quiz, and Mamas & Papas are among companies to have gone down that route this year.
 
So what’s going to happen under the new regime? The idea in the Insolvency Service’s report on pre-packs is that deals could be reviewed by an “evaluator” who “believes that they have the requisite knowledge and experience”.
 
But there are fears this could mean a free-for-all. Colin Haig, president of R3, the trade association for insolvency professionals, told The Times this meant that “effectively anyone will be allowed to provide an independent opinion on a connected party pre-pack sale, which risks abuse of the system that undermines the entire rationale of these reforms”.
 
It certainly seems that this could be the case as the proposals include an option for a connected party buying a business out of administration being allowed to “obtain more than one report” from an evaluator.
 
Landlords are among the hardest hit companies by pre-packs as retailers use them to start afresh and often get out of lease deals. Melanie Leech, chief executive of the British Property Federation told the newspaper that it welcomed a move to independent scrutiny of connected-party pre-packs but it was “concerned that the proposed regulations allow multiple opinions to be sought”. She said there should be a “low limit to the number of opinions that buyers can get.”
 
A voluntary review system was introduced in 2015. However, referrals to the Pre-Pack Pool, a body set up to provide oversight of connected pre-packs, have remained low, The Times said. And any role for the pool under the government’s reforms is unclear at present.
 
Peter Walton, professor of insolvency law at Wolverhampton University, said he was broadly supportive of the proposals but that “the qualifications of an evaluator seem too vague”.