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Independent scrutiny of connected party pre-pack sales to become mandatory

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The government will increase scrutiny on pre-pack administration business buyouts involving existing directors and shareholders.

The government has announced it will bring forward new laws requiring mandatory independent scrutiny of pre-pack administration sales where connected parties – such as the insolvent company’s existing directors or shareholders – are involved in the purchase.

The move is intended to improve confidence and transparency, giving the general public and creditors reassurance that their interests are being protected alongside those of the distressed business.

Minister for climate change and corporate responsibility Lord Callanan said: “This government is committed to creating a transparent and fair insolvency framework, and helping distressed businesses explore all options to get themselves out of trouble. Pre-pack sales are a really useful tool to help save troubled, but viable, businesses, and play a critical role in helping to protect our economy and preserve livelihoods.

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“As the UK continues to tackle Covid-19 it is more important now than ever that people can take confidence in the insolvency process. Connected parties such as existing directors or shareholders who know the company well can be ideal buyers. But in the rush to secure a sale, creditors’ needs should not be forgotten. The new law we are introducing will ensure such deals are properly scrutinised, to help balance the interests of everyone involved.”

Draft regulations which would mandate compulsory scrutiny of pre-pack sales to connected parties have been published and comment is invited on them until 5 November 2020.

The announcement came alongside the publication of a review to assess the impact of voluntary industry measures introduced in November 2015 to improve the transparency of pre-pack sales.

Tags : administrationbusinessgovernmentinsolvencypre-pack administration
Clare Nicholls

The author Clare Nicholls

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