Government introduces phoenix scrutiny

The government is proposing legislation to require independent scrutiny of pre-packs to protect creditors and the public.Photo:

Phoenix companies are not exactly unknown in the stone industry. This is where a company goes into administration, has the assets bought by its directors and/or shareholders in a pre-pack and continues trading under a usually similar name.

The government considers this might not necessarily be in the best interests of creditors and customers and is consequently proposing new laws requiring mandatory independent scrutiny of pre-pack administration sales.

It says the move is intended to improve confidence and transparency, giving the general public and creditors reassurance that their interests are being protected alongside those of the business going into administration.

Lord Callanan, the Minister for Climate Change & Corporate Responsibility, says: “Pre-pack sales are a really useful tool to help save troubled, but viable, businesses, and play a critical role in helping to protect our economy and preserve livelihoods.

"But in the rush to secure a sale, creditors’ needs should not be forgotten. The new law we are introducing will ensure such deals are properly scrutinized, to help balance the interests of everyone involved.”

Draft regulations to mandate compulsory scrutiny of pre-pack sales to connected parties have been published (you can download them here) and comment is invited on them until 5 November 2020.

The announcement comes alongside the publication of a review of the impact of voluntary industry measures introduced in November 2015 to improve the transparency of pre-pack sales. Click here to see that report.