Introduction of the Pre-Pack Pool

An independent pool of twenty business experts has been assembled to pass judgement on the proposed acquisition of businesses through pre-pack sales by those already involved in the running of the insolvent company. This new protocol has been introduced with effect from 2 November 2015. ‘Connected parties’ will be able to make an application through a secure, online portal and, for a fee, the independent reviewer will issue one of the following opinions:

  • The proposed pre-pack is not unreasonable.
  • The case for the proposed pre-pack is not unreasonable but there are minor limitations in the evidence provided.
  • The case for the proposed pre-pack has not been made out.

The corresponding strengthening of insolvency guidelines requires administrators to include in their report on the pre-pack, now made to their licensing body, whether the purchaser approached the pool and the outcome of so doing.

Previously, the pre-pack process has been seen as highly contentious due to the sale being agreed before the insolvency event and the lack of disclosure to creditors, who are presented with a fait accompli. The hope is that the new pool will increase transparency and the trust in the insolvency regime. Whilst only 5% of insolvent businesses involved a pre-pack in 2014 (and only two-thirds of those to connected parties), Duncan Grubb, the director of the organisation that will run the pool, has stated that “pre-pack administrations are an important part of the economy, helping rescue businesses and jobs”.

If you are contemplating a pre-pack or have been affected by the issue as a creditor, we encourage you to contact us and speak with one of our experienced Practitioners who will be more than happy to provide guidance and advice. An initial consultation is provided free of charge. Contact us.