Pre-Packaged Sale in Administration
If a sale under which all or part of the company’s business or assets is negotiated with a purchaser prior to the appointment of the administrator, where the administrator effects the sale immediately on or shortly after the appointment, this is known as a pre-packaged sale.
Any marketing of a company’s business with a view to pre-packaged sale should conform to the following essentials:
- Marketing should be undertaken for an appropriate length of time to satisfy the Administrator that the best available outcome for creditors as a whole in all the circumstances, has been achieved.
- It is essential that the directors understand where they propose to make an offer to acquire the business and the assets that the marketing protocol is strictly adhered to, in order that any sale to them is seen to be transparent and at an arm’s length.
- In order to progress a pre-pack sale, appropriate independent valuers and/or advisors will need to be instructed. The valuers and agents will also need to have adequate professional indemnity insurance in place.
- Additional regulation is intended to apply from 30th April 2021 as set out below.
1. The regulations will apply where there is a “substantial disposal” of the company’s assets by an administrator.
2. An administrator will be unable to make a “substantial disposal” of company property (including hiring out or sale) to a person connected with the company within the first 8 weeks of the administration WITHOUT either the approval of creditors or an independent written opinion i.e. a qualifying report (positive or negative, see below). This could involve one or more transactions.
3. Where a qualifying report states a case is not made for the support of the substantial disposal, an administrator may still proceed with the sale to a connected person(s). HOWEVER, he/she will need to provide a statement setting out their reasons for proceeding with the substantial disposal.
4. The written (electronic form included) qualifying report is to be obtained by the connected person (i.e. the purchaser) and provided to the administrator (or a copy of).
5. The independent qualifying report is to be provided by an individual, who is an evaluator, and must be independent of the connected party purchaser, the company, and the administrator. Important to note that the administrator, having regard to the date on which the report was made, must be satisfied that the evaluator making that report had sufficient relevant knowledge and experience to make a qualifying report.
6. Rather than obtaining an independent qualifying report, an administrator can seek approval from the company’s creditors. The administrator is to seek a decision of the company’s creditors when issuing their proposals referred to in paragraph 49 of Schedule B1 of the Insolvency Act 1986.
The creditors are required to approve the administrator’s proposals without modification, or with modification to which the administrator consents in order to satisfy the regulations.
Furthermore, the regulations refer to “the approval of the company’s creditors for the making of that disposal”. This suggests that where there is a further “substantial disposal” by the administrator within 8 weeks from appointment further creditor approval may need to be obtained as the initial approval was for a different disposal.
7. In this regulation “conflict of interest” means a financial or other interest which is likely to affect prejudicially the independence of the evaluator in providing a qualifying report.
8. The administrator must send to every creditor of the company, other than an opted-out creditor, a copy of the report (or, if more than one report was received, all the reports), excluding any information that, in the administrator’s opinion, confidential or commercially sensitive. This also applies when sending to the Registrar of Companies.
9. The report (or, if more than one report was received, all the reports), must be sent with (and at the same time as) the copy of the statement of proposals required to be sent to the Registrar of Companies and to creditors under paragraph 49(4) of Schedule B1 of Insolvency Act 1986.
The qualifying criteria of the Evaluator
The evaluator requires professional indemnity insurance that will provide them with cover in the role of evaluator. It is worth noting that Pre-Pack Pool members have this coverage – as well as ten years of board level experience.
Furthermore, the regulations will require the evaluator to state in their written report that they have considered any previous report obtained. This is presumably to avoid connected parties ‘opinion shopping’ for the best outcome.
If you would like to speak to one of our partners with respect to this option, please contact Paul Davis – Head of Corporate Recovery and Insolvency