The UK Government has announced that new, harsher laws are to be introduced on pre-pack administration sales to connected parties to provide complete transparency for creditors and the general public. This decision comes after growing concerns have been raised regarding some pre-packs and the perceived negative impact they have on creditors.

A pre-pack is a procedure where arrangements are made to sell part or the whole of a company’s business or assets prior to the appointment of an administrator. Whilst prepacks are considered by some as a viable, effective rescue method, helping to save businesses and prevent large scale job loss, concerns have been raised regarding the ‘fairness’ of these proposals on creditors, especially where connected parties are involved.

Hence, pre-pack transactions with a connected party, such as the company’s directors or shareholders, will now face mandatory independent scrutiny and the Government hopes this mechanism will re-establish trust in the procedure.

The Minister for Corporate Responsibility, Lord Callanan, has confirmed that regulations will be introduced to Parliament in due course requiring by law pre-packs to connected parties to be subject to independent scrutiny.