The Administration (Restrictions on Disposals etc., to Connected Persons) Regulations 2021

IP’s are all aware of public concerns, scrutiny, and sometimes misunderstanding over pre-packaged sales from Administration.   The Administration (Restrictions on Disposals etc., to Connected Persons) Regulations 2021 are the latest attempt by government to improve transparency in the system.  Whether or not that objective is achieved does remain to be seen.

The Regulations

There has already been plenty published about the detail of the Regulations, which are currently due to come into force on 30 April 2021.  However, to summarise the main points, if Administrators are going to dispose of a substantial part of the assets or business of a company, whether by a series of transactions, or one transaction, they will face a stark choice if that is to be done within the first 8 weeks of appointment.  Either, creditors will have to approve the transaction as part of the approval of the Administrators’ proposals, or alternatively “a qualifying” report will need to be obtained by the purchaser from an “an evaluator” in relation to the proposed transaction.  The Administrators will need to be satisfied by that report, which will either accept the case is made or not made for the connected party transaction.

IP’s will be aware that despite attempts in the House of Lords, there has been no success in arguing that the Regulations should prescribe the qualification and professional status of any evaluator (so for example, it could theoretically be someone other than an Insolvency Practitioner or a specialist Insolvency Lawyer that grants the opinion).  The requirements the Regulation imposes on evaluator identity are mainly to do with independence, the need for professional indemnity insurance and the evaluator not to be disqualified by virtue of bankruptcy or some other listed incapacity.

The Administrator does, however, need to be satisfied that the evaluator has “sufficient relevant knowledge and experience” in order to give an opinion.

Uncertainty

One of the difficulties with the failure to prescribe any detail of required knowledge and experience is the uncertainty that this brings to Administrators.  Unless RPB’s can give clarity and guidance about what is expected in terms of the evaluator’s report and an appropriate Statement of Insolvency Practice is put in place it seems that on the one hand that there could be a race to the bottom where evaluators who, in reality, are unqualified, but whom it is argued meet the terms of the Regulations, are willing to give a positive report without perhaps fully understanding whether the transaction is appropriate.  On the other hand, without clarity or guidance, particularly in bigger appointments any type of pre-pack, although perhaps best for the creditors,  may become impractical to execute if from a risk point of view the evaluator’s report becomes so complex, expensive and time consuming that it stops a transaction from being able to proceed in a timeous manner.  Further clarity will be welcome by the profession as soon as possible.

BBM Solicitors specialise in advising IP’s in both contentious and non-contentious matters (including transactional work). Contact: Eric Baijal (emb@bbmsolicitors.co.uk).This briefing note is current as at 30 March 2021 and is our understanding of the position described at that date. Legal advice ought to be taken before relying on its terms (particularly to ensure the law has not changed).