R3 Responds To Amended Draft Legislation Around The Scrutiny Of Pre-pack Administrations

Colin Haig, President of insolvency and restructuring trade body and Head of Restructuring at Azets, responds to the publication of amended draft legislation around the scrutiny of pre-pack administrations:

The legislation is the next stage in the Government’s efforts to improve stakeholder confidence in connected party pre-pack administrations, and follows its announcement in October 2020 that it would introduce a number of reforms to this important business rescue tool.

A key element of the reforms is the role of the Evaluator – an individual who will provide an independent opinion on whether connected party pre-pack sales are fair and appropriate.

"While the amended regulations published today are an improvement on the initial legislation released in October last year, there's still some way to go if these reforms are going to improve stakeholder confidence in pre-pack administrations.

"In particular, there is no framework in place to ensure qualifying criteria for the Evaluator position are being met. The new requirement for an Evaluator to have Professional Indemnity insurance - which we proposed as a minimum requirement - will not be enough on its own to secure the confidence of the wider business community.

"The role of the Evaluator is being introduced to give stakeholders greater confidence that connected party pre-packs are legitimate. Not only does an Evaluator need to be 'above board', but they need to have relevant business experience to give an opinion on whether a case has been made for individual connected party pre-pack sales.

"We recognise the difficulties the Government faces in legislating for this, but the responsibility for ensuring the suitability of the Evaluator position shouldn't simply be outsourced to the market to deal with. The entire point of the reforms is to ensure that there is an independent 'third pair of eyes' reviewing these sales - as it stands the legislation doesn't do enough to set the appropriate framework to guarantee that the Evaluator will fulfil that role in each instance.

"One potential solution is for the Government to maintain a list of approved Evaluators. This may pose more of a burden for the Government, but it's the only way to ensure that Evaluators are suitably qualified, and have the relevant experience, to carry out the role."