New regulations on pre-pack phoenix sales, catchily-named The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021, came into effect on 30th April. Below, I provide an overview.
A phoenix sale is the purchase of an insolvent business by its previous management. The business goes bust, and then re-opens, very quickly, looking much the same as it did before. Understandably, people owed money from the failed business often think this should not be allowed. They are likely to think the new regulations are a step in the right direction.
The regulations affect any early ‘substantial disposal’ to a ‘connected party’ and have broad definitions of both.
A connected party includes:
- The bust company’s directors, including shadow directors and other officers
- Associates of the company
- Associates of the directors
If a substantial disposal is being made to a connected party (or their company) within the first eight weeks of an administration, then administrators need to either:
- Get creditor approval, or
- Get an independent report from an experienced evaluator
At Frettens, we can act as independent evaluators to buyers from administrators, to assess whether the proposed sale should be regarded as legitimate. In these circumstances, time is of the essence. We aim to turn around an evaluation in two business days, once we have received the relevant information from the buyer and administrator.
For more information on the new pre-pack regulations, head to our website to read our comprehensive guide or visit the pre-pack section on our insolvency page. Malcolm also hosts monthly Coffee Break Briefing webinars, which can be found on our Events page.
Contact details:
Phone: 01202 499255 | Email: mniekirk@frettens.co.uk
This article is featured in the June edition of the Dorset Business Focus magazine. Read on the online version here.