Change to rules on pre-pack sales to connected parties

The government’s new legislation and amendments to pre-pack Statements of Insolvency Practice (SIPs) will come into effect at the end of April


The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 come into force on 30 April 2021.

From 30 April, administrators will be unable to make a substantial disposal of a company's business and assets to a 'connected person' within the first eight weeks of the administration, without either the approval of a majority of creditors or an independent written report from an evaluator.

The SIPs were revised following a public consultation by the Joint Insolvency Committee (JIC) with changes affecting SIP 16 Pre-packaged sales in administrations and SIP 13 Disposal of assets to connected parties in an insolvency process, and the withdrawal of SIP 4 Disqualification of directors.

Colin Haig, president of insolvency and restructuring trade body R3 and head of restructuring at Azets, said: ‘We welcome efforts to improve stakeholder confidence in pre-packs, but it may be proved that this legislation has missed the mark.

‘Sales to connected parties in pre-pack administrations will now be subject to creditor approval, or review by the new independent evaluator position. The rationale for this is clear but the practicalities around ensuring that an evaluator is a fit and proper person is where these regulations could fall down.

‘These regulations effectively leave it to the market to regulate the evaluator position. A far better alternative would have been for the government to agree to maintain a list of approved evaluators. This might have meant an additional administrative burden for them, but it would have given stakeholders greater confidence that these reforms were robust rather than just the easiest option for the government.’

The UK government announced last year its intention to use the power in the Corporate Insolvency and Governance Act 2020 (CIGA 2020) to require independent scrutiny of pre-pack sales in administration to connected parties, after a review of the effectiveness of the package of voluntary measures introduced in 2015 to improve creditor confidence.

The consultation on these amendments ran from April 2020 to July 2020 and all insolvency practitioners were invited to comment on the draft SIPs. The responses to the consultation were reviewed by working groups made up of insolvency practitioners, creditor representatives and the Insolvency Service and in October 2020 draft regulations were published alongside the government’s review into pre-pack sales in administration.

The changes to SIP 16 and SIP 13 currently only apply in England, Wales and Scotland. Northern Ireland is yet to create equivalent legislation though it is expected to adopt similar requirements by 29 June 2021.

Ruby Flanagan |Reporter, Accountancy Daily

Ruby Flanagan is reporter on Accountancy Daily. Contact her on

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