Understanding The Administration Regulations 2021 (Restrictions of Disposals etc. To Connected Parties)
The Administration (Restrictions of Disposals etc. To Connected Parties) Regulations 2021, commonly known as “The Regulations,” introduced a critical requirement for sales within eight weeks of a company entering administration. Specifically, if the sale is to a connected party, it must be approved either by the company’s creditors or through a written report by an independent Evaluator. These regulations, effective from April 30, 2021, are particularly relevant for prepack sales arising from an administration after this date.
The background of The Regulations
Before the introduction of The Regulations, prepack sales were largely unregulated, leading to a degree of skepticism among creditors of insolvent companies. Concerns often arose when the purchasing party was connected to the failed business. To address these concerns, the Prepack Pool was established in 2015 following recommendations from a report by Teresa Graham DBE. The Pool encouraged administrators and business purchasers to voluntarily submit proposed sales to connected parties for independent scrutiny. The Prepack Pool comprised experienced professionals who could objectively assess these sales. However, because participation in the Prepack Pool was voluntary, it saw limited use, which ultimately led to the introduction of mandatory requirements under The Regulations.
Creditors have long been wary of prepack sales, especially when the buyer has ties to the insolvent company. This skepticism stems from concerns about potential conflicts of interest and the fairness of the transaction. However, it’s important to recognize that when a business is in financial distress, time is often of the essence. Connected parties, who have familiarity with the business, are often best positioned to offer the highest price and ensure continuity of operations.
The importance of an Evaluator's Report
The Regulations clearly state that any “substantial disposal” of a company’s assets within the specified period must be either approved by the company’s creditors or supported by a qualifying Evaluator’s report. The term “substantial” can vary depending on the specifics of the business and the administration, meaning there may be multiple disposals within a single administration that fall under these regulations.
While seeking creditor approval might seem like a straightforward option, it often presents significant challenges, particularly regarding the speed and confidentiality of the transaction. Obtaining creditor consent can take a week or more, which may result in the loss of a viable business. Moreover, seeking approval from a large number of creditors can be both costly and time-consuming. There’s also the risk that public knowledge of an impending sale could negatively impact the business’s value.
In many cases, commissioning an Evaluator’s report is a more practical and efficient solution. This approach is especially beneficial when time is a critical factor. However, it’s crucial to understand that an Evaluator’s report should not be viewed as a shortcut. The Evaluator must be entirely independent of both the Administrator and the connected party, ensuring an unbiased assessment of the proposed sale. Additionally, the Evaluator should possess relevant experience in such transactions to provide a thorough and reliable evaluation.
Criteria for acting as an Evaluator
The Regulations set out specific criteria for individuals who wish to act as an Evaluator:
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Professional Indemnity Insurance (PII): The Evaluator must have PII in place.
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Independence: The Evaluator must be independent of the company in or about to enter administration, its directors, the Administrator, and the proposed purchaser.
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Integrity: The Evaluator must not be subject to any insolvency proceedings or have been convicted of dishonesty.
What is a Prepack Sale?
Although there isn’t a statutory definition of “prepack,” it generally refers to the sale of all or a significant portion of a company’s business or assets shortly before or after the company enters administration. Typically, the terms of the sale are negotiated and agreed upon just before the company is placed into administration, which is why it’s referred to as a “prepack.”
Why choose David Ingram Advisory?
With over 30 years of experience as a licensed insolvency practitioner and 35 years as a Chartered Accountant, I bring a wealth of knowledge and expertise to the table. My extensive experience includes acting as a vendor of businesses and assets, and dealing with purchasers in various industries. This background equips me with a deep understanding of the expectations and requirements of both insolvency practitioners and creditors.
When you choose David Ingram Advisory, you benefit from my ability to act quickly and deliver comprehensive reports within a short timeframe. I understand the urgency often associated with prepack sales and am committed to providing prompt and reliable service.
I am also fiercely independent. Unlike many other firms, I am not affiliated with any larger organizations, reducing the risk of conflicts of interest. Although I hold an insolvency license and am regulated by the IPA, I no longer take on insolvency appointments and have no intention of competing with your business.
By instructing me, you receive my personal attention and expertise. I am readily available by phone, email, or message, and will respond promptly if I am unable to take your call immediately. I understand that timely communication is crucial in these situations, and I am dedicated to meeting that need.
I am committed to delivering clear, jargon-free reports that are easy to understand. I work closely with administrators and proposed purchasers to fully comprehend the transaction and prepare an accurate Evaluator’s report. If any information is unclear or additional documentation is needed, I will not hesitate to ask for clarification.
Choosing David Ingram Advisory ensures that you receive an expert evaluation tailored to the unique circumstances of your transaction, providing the confidence and assurance you need to proceed.
My approach to Independent Evaluator Reports
I carefully tailor each Independent Evaluator Report to fit the specific needs of your case. I consider the complexity and scale of your business—whether it’s a small single-site operation or a multi-site enterprise—and adjust the report's scope and costs accordingly. Rather than using a generic, “one size fits all” pricing model, I take a thoughtful, customised approach. My fees stay competitive and proportionate to your situation.
If you need an evaluator's report, call or email me directly.