Insolvency Services Delays Changes to Rules Governing Pre-Packs
October 2011 was meant to see the implementation of new (extra) rules governing pre-packaged insolvency sales by liquidators and administrators (the "Insolvency (Amendment) (No 2) Rules 2011"). The Insolvency Service has decided that these will not now come into force until April 2012 at the earliest to give the Government further time to consider comments and objections it received on the new rules from insolvency practitioners, creditor representatives and other interested parties.
The intention of the new rules is to give greater transparency on pre-pack, and in particular "phoenix", transactions. It was proposed, amongst other things, that administrators or liquidators acting on a pre-pack must:
* State that the pre-pack sale price represents the best value for creditors, when consenting to act.
* Give creditors three business days notice of the terms of a pre-pack sale to a connected or associated party, where there has been no open marketing of the company`s assets.
* Report details of the pre-pack sale in their statement of proposals or first progress report to creditors, if the sale completed before these documents are sent out.
One of the main criticisms has been that the three days notice which would have been given to creditors could seriously harm any value in a failing company and therefore its ability to be sold as a "going concern". Three days is a long time in a business which is struggling to survive.
It remains to be seen how the Government will balance the desire to make pre-packs more transparent against the need for such transactions to move as quickly as possible.
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.