Pre-Appointment Liquidation sales: An alternative to administration pre-packs?

Posted on: 22/11/2021

• Share this article:

• 
• 
• 
• 
• 

On Monday 8th November, Malcolm Niekirk held one of his popular Coffee Break Briefing Webinars.

In the webinar, Malcolm looked at pre-appointment liquidation sales as an alternative to administration pre-packs.

This is the summary from the presentation…

A bit of insolvency history

Prior to the Insolvency Act 1986, there were two main statutory procedures:

• Liquidations
  • A Companies Act procedure
  • ‘In-person’ meetings of creditors
• Receiverships
  • Largely unregulated
• Informal procedures were not statutory
  • Wholly unregulated, and only for the brave

Issues prior to the Insolvency Act

Before the Insolvency Act if a receivership was not possible, it would have to be a liquidation.

The issue for the liquidator was whether to sell the assets before they were appointed (pre-appointment) or following appointment.
Post appointment sales:

• Notice of impending creditor’s meeting likely to damage the struggling business
• The creditors might appoint a different liquidator. This might have resulted in:
  • Delayed sale
  • Different strategy being required

Pre-appointment sales:

These were often preferred as they were easier for the liquidator, as they wouldn’t have to deal with the business assets themselves.

They would simply take possession of the bank account with the sale proceeds in it.

Liquidators had to take careful control over the directors in the pre-appointment phase.

The Insolvency Act 1986

The new procedures:

• Administration orders
• Administration receivership
• Liquidations
• Voluntary Arrangements

Administrations

In the early days of administrations there was uncertainty about administrators’ power to sell pre-proposal.
Another issue was that administration orders were a very court intensive process.

(And if a pre-pack sale was proposed – the pre-pack sale would come under close judicial scrutiny pre-appointment.)
The costs limited the procedure’s success.

Enterprise Act 2002

This followed the unsuccessful ‘schedule A1’ CVA Moratorium (Insolvency Act 2000)

The Enterprise Act brought ‘schedule B1’ into the Insolvency Act. It allowed for administrations without the need of a court order.
An unanticipated consequence of the Enterprise Act was the rise of administration pre-packs.

The pre-pack sale didn’t need to be as fully developed at the time of appointment  as it would’vebeen if the IP were going for an administration order.

This led to a lack of creditor oversight and involvement:

• There would be 8 weeks from sale to publication of proposals
• It was difficult for creditors to appoint a different IP
• Various regulatory initiatives eventually led to the ‘pre-pack pool’

The full article goes into much more depth, looking at:

• The options for going concerns
• Issues for directors
• Issues for the advising IP
• Commercial issues

… and more.

Click here to read the full article.