Speed read: Rachel Clark considers whether draft new regulations requiring scrutiny of pre-pack sales to connected parties will be enough to prevent fraud and restore confidence in the process.

Once likened to sustaining ‘Frankenstein monsters’, the use of ‘pre-packs’ is controversial.

Whilst not defined by statute, the term ‘pre-pack’ is commonly used to mean an arrangement to sell all or a substantial part of a business prior to the company entering administration, with the administrator then completing the sale.

Hot on the heels of the landmark changes to the insolvency landscape brought by the Corporate Insolvency and Governance Act 2020 (CIGA) (see our previous article on CIGA), the Government recently announced reforms relating to pre-packaged administration sales to connected parties.

On 3 December 2020, HM Treasury published the Government's proposal to implement a new special administration regime for PIs and EMIs (PI and EMI SAR), a copy of which can be seen here.

The UK government has published new draft regulations to require mandatory scrutiny of administration sales to connected parties (such as the insolvent company’s existing directors or shareholders).

In the UK, a "pre-pack" is an arrangement under which the sale of all or part of a company’s business or assets is agreed with a purchaser prior to the appointment of administrators. The sale is carried out by the administrators immediately on, or shortly after, their appointment. Administrators must be licensed insolvency practitioners.

In a not unexpected move with restrictions on the general public expected to remain well into the New Year the Government has extended the protections for commercial tenants and the restrictions on filing statutory demands and winding up petitions for COVID-19 related debts until the end of March 2021. The Government's announcement referred to these being the "final extensions".

After a year in which numerous businesses have relied on various forms of government support to stay afloat, many will be hoping that 2021 offers the chance to emerge from this period and resume some degree of normal trading. Certainly, the coming year will be make-or-break time for those businesses that have been most impacted by the pandemic – and as government assistance is wound back, the demand for working capital funding is likely to be high.

With the possibility of a no-deal Brexit looming large, the implications for Irish insolvency practitioners is something we will all have to consider. The insolvency landscape will most likely look very different when we all return to the office after Christmas. This is a discussion on some of the possible implications for Irish and UK insolvency practitioners post-Brexit.

Current Regime

General rule under the laws of England & Wales

As a general rule, a cause of action (also known as a “bare right to litigate”) may not be assigned under English law. Such assignment is deemed to violate the rules regarding champerty and maintenance, the common law principles which prohibit third parties from intermeddling with the disputes of others – be it or not in return for a share of the proceeds. An assignment of a cause of action is therefore void.

The temporary restrictions that prohibit winding up proceedings where non-payment is COVID-19 related, and restrict petitions based on unsatisfied statutory demands, that would have come to an end on 31 December 2020 have been extended until 31 March 2021.

What are the restrictions?

Statutory demands

Creditors cannot rely upon an unpaid statutory demand as evidence of inability to pay debts in order to issue a winding-up petition against a company, effectively rendering the statutory demand void for that purpose.

With the possibility of a no-deal Brexit looming large, the implications for Irish insolvency practitioners is something we will all have to consider. The insolvency landscape will most likely look very different when we all return to the office after Christmas. This is a discussion on some of the possible implications for Irish and UK insolvency practitioners post-Brexit.

Current Regime