With fairly swift measure the UK House of Commons approved the ‘pre-pack regulations’ confirming that, with effect from 30 April 2021, before a pre-pack sale can complete creditor approval or an independent written report from an evaluator will be required.
The detail about, the now mandatory referral process, can be found in our previous blogs.
Who will the evaluator be?
This remains one of the biggest unknowns.
The only requirements in the regulations about identify, are that the person is satisfied that they have the relevant knowledge and experience, are independent and hold professional indemnity insurance. There are a number of persons who are excluded from acting, although fairly obvious, such as those people who have been convicted of dishonesty, made bankrupt or the administrator themselves.
Although the connected person has to obtain the evaluator’s report the insolvency practitioner (IP) also has to be comfortable that the evaluator has the relevant knowledge and experience – which is likely to pose a few questions for an IPs risk and compliance team.
This should hopefully be an easy risk to manage if, as the government expects, lawyers, accountants, former members of the pre-pack pool and other IPs will take on the role but for someone outside this group, who does have the requite knowledge and experience will they (a) be able to get the professional indemnity insurance to enable them to meet the criteria to act, and (b) meet an IPs internal risk and compliance requirements. We will have to wait and see. Understanding how an IPs professional body views this role will also be key.
This is also unlikely to be the last we hear on the question of pre-packs, if unscrupulous people try to ‘game the system’ to their advantage.
Some measures have been included in the regulations to try and address concerns, such as to prevent opinion shopping, but if in practice the regulations do not address the perceived lack of transparency and creditor confidence because the rules are flexed in a way that allows unscrupulous directors and evaluators to game the system, then the government will consider whether further change is necessary, or whether pre-packs should be scrapped entirely. The latter would be disappointing, because a pre-pack is a valuable restructuring tool, and for the majority of the insolvency profession ensuring that remains an option for business rescue will be important.