Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021

Lord Lennie Excerpts

Monday 22nd March 2021 Lords Chamber

[Lord Lennie (Lab) [V]]

My Lords, as we have heard, this instrument proposes changes to address concerns about pre-packs. In the current context of the pandemic and a potential wave of insolvencies, we need to ensure that the regulations alleviate these concerns effectively. We have constantly pressed the Government to take action against the abuses that were occurring in pre-pack cases. There was a flurry of high-profile pre-pack sales last year, along with corresponding concerns. For example, it was reported that unsecured creditors of Monsoon Accessorize were owed more that £132 million after its founder bought it back out of administration in a pre-pack deal.

The Government have said that despite voluntary measures that were introduced for an independent review of pre-pack sales in 2014, there are still issues with transparency, so this instrument requires that if a person intends to acquire a business or assets from a company in administration and is connected to the insolvent company, they must seek an independent opinion from an evaluator on the purchase, unless creditors have approved the sale. The instrument also sets out certain requirements for the person acting as an evaluator, such as the need for indemnity insurance. It prevents a person from obtaining multiple evaluator reports—opinion shopping, as was said—in the hope that one might prove favourable.

The Government have said that

“the mandatory referral to an independent third party will provide creditors with greater assurance that such a sale is appropriate in the circumstances of the insolvency.”

As we have heard,

“there’s still some way to go if these reforms are going to improve stakeholder confidence in pre-pack administrations.”

The trade body R3 has said that the legislation unfortunately risks critically undermining, rather than improving stakeholder confidence in pre-packs. Without ensuring the integrity of the evaluator involved by maintaining a list of approved evaluators, the Government will undermine confidence in the wider regulatory framework around pre-packs, effectively outsource responsibility for ensuring the suitability of the individual evaluators to the market and add unnecessary complication to business rescue efforts.

R3 also said that

“there is no framework in place to ensure qualifying criteria for the Evaluator position are being met.”

Can the Minister explain why this is the case? Does he believe that the new requirement for an evaluator to have a professional indemnity will be sufficient to secure the confidence of the wider business community?

The regulations also place a new requirement on administrators who must be

“satisfied that the individual making that report had sufficient relevant knowledge and experience to make a qualifying report.”

This means that the administrators will effectively be charged with ascertaining the suitability of individual evaluators. What happens if the evaluator may be purposefully or successfully misleading? If there is not a central register of evaluators, to whom does an administrator complain if they have been misled? How can inappropriate evaluators be reported and to whom should they be reported?

The British Property Federation has said:

“It is … disappointing that the regulations allow a sale to proceed despite a negative opinion. A negative opinion should mean the sale cannot proceed.”


Why have the Government not taken this approach? Where the case is not made, an administrator will still be able to proceed with the sale to a connected person but will need to provide an explanation of why they have proceeded. What should be included in this explanation of allowing the sale? Have the Government considered maintaining a list of approved evaluators? How will the Government ensure that all evaluators have relevant business experience to give an opinion on whether a case has been made by an individual or connected party for pre-pack sales?

The government report from last October said:

“The government does not, therefore, propose that the power to ban connected party sales in administration should be used.”


Can the Minister say how this conclusion was reached?

We need clarity in these regulations about how they work in practice, especially if the withdrawal of government Covid support results in a wave of insolvencies and the increased likelihood of pre-pack deals. We are grateful in this House to have the knowledge and experience of the noble Lords, Lord Mendelsohn, Lord Hodgson and Lord Vaux, and the noble Baroness, Lady Neville-Rolfe, in this area. We need clarity across the piece.