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

Lucy Powell Excerpts

Tuesday 23rd March 2021 General Committees

[Lucy Powell (Manchester Central) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Ms Bardell.

We have supported, and have indeed called for, many of the changes that have been brought through the Corporate Insolvency and Governance Act 1986 and the subsequent extensions. Pre-pack administration sales are a useful tool for quickly rescuing businesses in financial difficulties, and are vital in these current times, but such sales must always be balanced against the need to protect the veracity of the restructuring process and the interests of creditors.

In recent years, there has been criticism of and considerable attention paid to pre-pack sales, which occur before the creditors are given an opportunity to vote on the administrator’s proposals to sell a company’s business or assets. The speed with which the pre-pack sale takes place helps to preserve the value of the business and the jobs, but concerns centre on the lack of transparency for creditors and the fact that, in many cases, businesses or assets are purchased by the same owners or other persons connected with the insolvent company.

The regulations will require that where a person intends to acquire a business or asset from a company in administration within the first eight weeks and that person is connected to the insolvent company, they must seek an independent opinion on that purchase, unless the creditors have already agreed the sale—a principle that we very much support. However, some have raised concerns that this statutory instrument appears to be an attempt by the Government to control the pre-pack sales process without an understanding of what they are necessarily trying to achieve.

Some of the concerns centre around the identity of the evaluator and the qualifications requirements for that evaluator. I note that the Minister mentioned that point, but there is no requirement in the regulations for the evaluator to hold any professional qualifications, so perhaps he could say a bit more about that.

On connected persons, several people wanted a carve-out to be included in the definition of connected persons in the regulations for secured lenders. That has not been included. Will the Minister explain why not?

On the responsibility for the report, stakeholders argued that it should be the administrator and not the connected person who must obtain the qualifying reports. However, that recommendation was not included. That relates to the issue of “opinion” shopping that the Minister mentioned. I note that steps have been taken on that issue, but some concerns still remain.

To conclude, some concerns have been addressed and some have not been addressed fully, so perhaps the Minister could reassure us on those points. However, we are happy to support the regulations today.