R3 Scotland: New rules on pre-pack sales have ‘missed the mark’

R3 Scotland: New rules on pre-pack sales have ‘missed the mark’

New regulations which aim to improve the transparency of sales to connected parties in administrations are flawed, says insolvency and restructuring trade body R3 in Scotland.

The rules, which come into effect on 30 April, apply to all sales of businesses and/or substantial assets of a company in administration to a connected party, such as a director or company owner, if they happen within the first eight weeks of the administration. They are especially aimed at pre-pack administrations, where a business is sold shortly after an administrator is appointed.

The Government’s aim is to improve stakeholder confidence in connected party pre-pack administrations, by requiring the connected party purchaser to provide an assessment of the sale’s fairness to creditors from an independent ‘Evaluator’, or to secure the agreement of the company’s creditors to the sale.

R3 in Scotland is concerned that the lack of government oversight of the Evaluator, the person who provides the independent opinion about whether connected party pre-pack sales are fair to creditors, means the legislation may not fulfil its objectives.

Iain Fraser, chair of R3’s Scottish Technical Committee and a partner at FRP Advisory, commented: “We welcome efforts to improve stakeholder confidence in pre-packs, but it may be proved that this legislation has missed the mark.

“Sales to connected parties in pre-pack administrations will now be subject to creditor approval, or review by the new independent Evaluator position. The rationale for this is clear but the practicalities around ensuring that an Evaluator is a fit and proper person is where these regulations could fall down.

“These regulations effectively leave it to the market to regulate the Evaluator position. A far better alternative would have been for the government to agree to maintain a list of approved Evaluators.

“This might have meant an additional administrative burden for them, but it would have given stakeholders greater confidence that these reforms were robust rather than just the easiest option for the government.”

Share icon
Share this article: