Pre-pack sales are a vital tool in business rescue. This much is not really up for debate. However, in recent years, there have been several high profile pre-pack deals undertaken where the purchaser is a connected party to the business in administration.
When a deal like this takes place, it raises some eyebrows. Not least from the creditors who tend not to know about the pre-pack sale until the deal has already taken place. They are often unaware that the buyer is a connected party (possibly a former manager, or a ‘newco’ set up by a related team) and they may question whether the deal is the best option for them.
In response to these concerns, the government has introduced some fresh regulations, which, if passed, could come into force in spring 2021. They would increase the requirements on the purchasing party in a pre-pack administration where the purchaser is connected to the business in administration.
The problem with connected party pre-pack deals
There may not be a problem, inherently, with struggling businesses being bought out of administration by connected parties. However, from a creditor point of view, there are sometimes concerns about whether these pre-pack deals always represent the very best terms for those to whom the business owes money.
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