Pre-pack transparency to be improved

The proposals follow an independent review, launched in July 2013 by regulations specialist Teresa Graham. The review looks into “pre-pack sales” - an arrangement to sell the profitable parts of a struggling company before an insolvency is announced, to obtain the best price possible.

The review identified concerns that pre-packs were not always transparent or fair nor delivered the best outcomes for customers and small businesses affected when companies went bust.

Announcing the recommendations in June, Business Minister Jenny Willott said: “When these types of business sales are carried out properly, they allow the viable parts of the business to continue operating and jobs are saved. But it is also important for those who are owed money to know they are getting the best possible deal in the circumstances. Transparency is vital.

“Teresa Graham has come up with a set of recommendations which will ensure people get back as much money as possible and make pre-pack deals more transparent.

“We will be working with business and industry to implement these recommendations in full and we believe it will help restore trust and confidence in pre-pack deals. We will monitor progress closely and will take the power to legislate if necessary.”

Ms Graham’s recommendations are particularly targeted at sales to connected parties – typically former directors or owners of the business – as evidence showed that creditor pay-outs were often worse and the new business was less likely to succeed following these kind of pre-pack deals.

Recommendations include:

• showing the details of a proposed sale to a connected party to an independent person before the sale takes place.  This is with a view to  increasing transparency and giving greater confidence to creditors
• requesting connected parties to complete a viability review for the new company to improve its chances of success
• ensuring proper marketing is undertaken in order to maximise sale proceeds.

Giles Frampton, president of insolvency trade body R3, said: “Teresa Graham’s report is an excellent contribution to the pre-pack debate. We fully support her conclusion that there is a place for pre-packs in the UK’s insolvency framework.”

At Royds, we are experienced in advising creditors on all aspects of commercial debt litigation and on issues including which procedure is most likely to result in the recovery of money owed. For more information, please visit or contact Stewart Wilkinson or Ashok Patel.