Ed Davey proposes to slow down pre-pack administrations

Ed Davey, the Business Innovation and Skills minister, has proposed new rules for the pre-pack administration process which would slow it down considerably.

Mr Davey’s proposal involves giving a three-day notice period for connected parties to oppose a deal before the pre-pack goes ahead. At the moment businesses can be marketed before entering administration and sold straight away afterwards, potentially leaving unsecured creditors in serious debt.

The notice period would give creditors the opportunity to “express concerns, which the administrator would need to consider, or make a higher offer for the assets” said Mr Davey. The administrators would need to confirm that the price of the business would give the best value for the creditors, to the best of their belief.

The proposal could become law by the end of this year, and would be applicable to any sales back to connected parties in an administration process where the assets were not overtly marketed.

Steven Law, president of insolvency trade body R3, has expressed his concern that a by-product of such a law could be increased numbers of liquidations. “Three days is a long time in business, and if unable to trade in that period, [a business] is at risk of losing key staff and customers.” Directors could be more likely to choose liquidation instead Mr Law added.

“Sales to connected parties tend to happen because there is simply no other buyer at the table,” he said.

Insolvency statistics show that about 40 per cent of pre-pack administrations have involved the selling of the business to connected parties.

The British Property Federation believes that three days would not be enough time to review connected party sales, however. “The three-day period is not sufficient in our view, and should be extended to one week,” said James Anderson of the BPF.

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