6.6 Pre-packs & connected party disposals Flashcards
What is the SIP 16 definition of a pre-pack?
“… an arrangement under which the sale of all or part of a company’s business or assets is negotiated with a purchaser prior to the appointment of an administrator and the administrator effects the sale immediately on, or shortly after, appointment.”
SIP 16 applies to all pre-pack, not just connected parties.
What safeguards does SIP16 incorporate?
SIP applies to all pre-pack –not just connected party disposals
Administrator to provide sufficient information in the SIP16 statement such that a reasonable and informed 3rd party would conclude the sale was appropriate and the IP has acted in creditors’ interests
“Connected person”definition extended to include any connection with directors, shareholder, secured creditors or their associates
Explain why the pre -pack was undertaken and alternatives considered
Make required disclosures with 1st notification to creditors
Marketing essentials
Valuation by appropriate independent valuers, with PII cover
External scrutiny via Pre-pack pool [PPP]
Append PPP opinion to SIP16 report
Creditors should be confident that the insolvency practitioner has acted
professionally and with objectivity
What did The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 – 30 April 2021bring into force?
Apply to “substantial disposal”by an administrator
To one or more connected persons
Within first 8 weeks
Disposal restricted unless:
Approved by creditors; or
The connected person obtains a report from an independent evaluator
Administrator to send copy to the creditors and Registrar, with the proposals
Can still proceed if negative –subject to an explanation being provided
What are the IP’s duties in a pre-pack?
Objectives of administration must still be achieved
Ensure market value achieved
Noting perception where a connected party purchaser
Comply with ethical standards and regulatory requirements
Ensure transaction at arms length
Must be satisfied that appropriate marketing has taken place
Provide detailed information on valuation, marketing and sales strategy
Able to justify actions and decisions
Record context in which decisions made
SIP 16 - what work is not included in the IP’s role?
IP should make it clear that the role is not to advise the directors or any parties connected with the purchaser
who should be encouraged to take independent advice
What is a viability statement?
“A viability review can be drawn up by a person connected to the insolvent entity wishing to make a pre-packaged purchase, stating how the purchasing entity will survive for at least 12 months from the date of the proposed purchase. The prospective purchaser should consider providing a short narrative detailing what the purchasing entity will do differently in order that the business will not fail (the viability statement).”
If a viability statement is provided, it should be attached to the SIP16 report
What are the SIP 16 marketing essentials?
Broadcast–the business should be marketed as widely as possible proportionate to the nature and size of the business
Justify the marketing strategy – explain reasoning
Independence–can’t necessarily rely on previous marketing by company
Publicise rather than simply publish –to ensure best outcome
Connectivity – use online media by default
Comply or explain–particularly with sales to connected parties
When must the SIP 16 statement be provided to creditors?
To be provided with 1st notification to creditors (proposals might be later):
Within 7 calendar days of the transaction
Required to explain any non-compliance
Append to proposals filed at Companies House
When does The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 [ARDCPR21] apply?
Substantial disposals made within the first 8 weeks of administration to a party connected to the company
MAY OR MAY NOT ALSO BE A PRE-PACK
NOT a pre-pack if sale not “shortly after”appointment (2 weeks?)
NOT a pre -pack if not negotiated prior to appointment of administrator
When isn’t a transaction a pre-pack?
NOT a pre -pack if not negotiated prior to appointment of administrator
OR
NOT a pre-pack if sale not completed “shortly after”appointment (2 weeks?)
Reg 3 ARDCPR21 - what is a substantial disposal?
Means a disposal, hiring out or sale to one or more connected persons
During the period of 8 weeks beginning with the day on which the company enters administration
Of what is in the administrator’s opinion all or a substantial part of the company’s business or assets
To include a transfer effected by a series of transactions
Reg 3 ARDCPR21 - what are the restrictions on a substantial disposal?
The administrator must not make a substantial disposal unless either one of the following two conditions is met:
- The approval of the company’s creditors for the making of that disposal has been obtained; or
- A qualifying report in respect of the making of that disposal has been obtained
Who is a connected person per sch B1 IA86?
Director or other officer or shadow director of a company, non - employee associate of such person, non-employee associate of the company
The company is connected with another if any relevant person of one is or has been a relevant person of the other
A non -employee associate of a person means a person who is an associate otherwise than by virtue of employing or being employed by that person
How is creditor approval obtained for the purpose of ARDCPR 21?
The approval of the creditors is obtained if administrator has:
included proposals for making the disposal in their statement of the proposals under para 49
And subsequently sought a decision from company’s creditors as to whether they approve the proposal and
The company’s creditors approve the proposal:
Without modification or
With modification, consented to by the administrator
**Approval can be by deemed consent or qualifying decision procedure BUT NOT para 52 deemed approval
Deemed approval = where sufficient assets to pay creditors in full, or insufficient assets to pay unsecured creditors any more than the prescribed amount, or objectives a & b can’t be met. UNLESS 10% by value of creditors request a DMP.
What is a qualifying report for the purpose of ARDCPR 21?
A written report from an independent evaluator
Obtained by the connected person
Dated and authenticated by the evaluator
Containing the prescribed contents
Administrator is satisfied that the individual has sufficient knowledge and experience
What must a qualifying report for the purpose of ARDCPR 21 contain?
The report must contain:
Statement that the person giving the report is an Evaluator
What their relevant knowledge and experience is
Details re Professional Indemnity Insurance (PII)
Identification of the relevant property
Whether a previous report obtained or not
Statement re nature of consideration to be paid and value in £
Identification of connected person and statement re their connection to the company
What must the Evaluator’s opinion state:
The evaluator’s report must state either:
- They are satisfied that the consideration for the property and grounds for disposal are “reasonable in the circumstances”
(case made); or - They are not satisfied that such consideration is reasonable (case not made)
In either case, the evaluator’s principal reasons for making the statement and a summary of the evidence relied upon
What is the timing for an evaluator’s report?
Before or after appointment of administrator
What is the status of an evaluator’s report?
The administrator must consider the report, but is not bound by it
Can reject whether positive (eg better offer) or negative (ie accept if in best interests of creditors)
What are the requirements to act as an evaluator?
The evaluator must be an individual who:
Is satisfied that their relevant knowledge and experience is sufficient for the purposes of making a qualifying report
Meets the requirement as to insurance
Meets the requirement as to independence - not connected to the company or an associate, nor subject to other conflict of interest
Is not excluded from acting as an evaluator ie Not an undischarged bankrupt or disqualified from acting as a director etc
Who receives a copy of the evaluator’s report & when?
The administrator is required to send the qualifying report to creditors and the Registrar of Companies:
Appended to their proposals
Or earlier, with their SIP 16 report (if applicable)
Together with:
A statement of the reasons for proceeding with the substantial disposal if contrary to the opinion expressed in the report
Any viability report instructed by the connected person
What are the SIP 13 (disposal of assets to a connected party) key compliance standards?
IP should exercise professional judgement in advising the client whether a formal valuation of any/all of assets is necessary
If valuation relied on not undertaken by an appropriate independent valuer, this should be disclosed along with rationale
Office holder should keep detailed records of reasoning behind decision to sell to connected party and all alternatives considered
When must a SIP 13 transaction be disclosed?
ASARP -Disclosure in next report to creditors after transaction has been concluded
What are the additional disclosure requirements where a company is in administration?
IP should ensure that any connected party purchaser is made aware of The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021
i.e. the sale must be subject to a qualifying report or approved via the proposals, if conducted within 8 weeks of appointment
Additionally where a qualifying report has been provided to an administrator, they are required to send the qualifying report to creditors with the proposals
What powers do administrators have to sell a business?
Administrator has the power to sell a business without prior approval from creditors, Court or committee
Schedule1
Any decision to sell is the administrator’s responsibility
TUPE - if a business is sold whilst in administration, who is responsible for redundancy costs?
Where a company is in administration at the time of the transfer of its business, its employees and their liabilities will always transfer automatically to the purchaser
They will be responsible for any redundancy costs, if they chose to re-organise staff
The purchaser will potentially have more time to consult with employees if
redundancies need to be made
What are the s216 exceptions?
May act in 3 sets of circumstances:
1. Business purchased from an insolvency office holder
2. Ask Court for permission
3. Name already in use
