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New Pre Pack Code of Practice

As of the 1 January 2009 there was a change in the Insolvency Regulations which were aimed to reduce the ability of 'some' practitioners to rush through contentious sales of businesses in administration.

The new statement in England and Wales makes it obligatory that administrators disclose detailed and accurate information to creditors before and after a pre-packaged administration.

The best practice code establishes a number of ways that the administrators should conduct themselves during a the whole process of a pre-pack sale.

The code says - "Practitioners should be clear about the nature and extent of their role and their relationship with the directors in the pre-appointment period. They should make it clear that their role is to advise the company and not to advise the directors on their personal position." For this reason we always advice our client to never appoint a Insolvency Practitioner direct but rather employee us on a consultancy basis to ensure that the directors personal position is fully protected.

The statement continues by saying that "Practitioners should bear in mind the duties and obligations which are owed to creditors in the pre-appointment period. They should be mindful of the potential liability which may attach to any person who is party to a decision that causes a company to incur credit and who knows that there is no good reason to believe it will be repaid". It is in our opinion that our clients should always seek independent advice prior to entering into any discussions with Insolvency Practioner to ensure that they receive expert advice which is aimed at mitigating their liabilities opposed to receiving advice on how o best serve their creditors.

As of the 1st January 2009 and in relation to all cases of a pre-packaged sale, the administrator will have to disclose the following information to creditors;

  • The source of the administrator's introduction to the client
  • The degree of the administrator's advice prior to his appointment
  • The source of all valuations acquired of the business or the fundamental assets
  • The alternative actions that were take into consideration by the administrator, with an account of potential benefits for creditors
  • Why it was not suitable to trade the business, and sell it as a going concern, during the administration period
  • Particulars of requests made to prospective funders to fund working capital requirements
  • Whether efforts were made to confer with major creditors
  • The date the assets were sold and when the former company closed
  • Particulars of the assets concerned and the nature of the transaction
  • The terms of payment, and any condition of the contract that could considerably affect the consideration given by the buyers
  • If the sale is part of a wider transaction, a description of the other aspects of the transaction
  • The identity relating to the new purchaser
  • Any connections between the directors, shareholders, purchasers, or secured creditors
  • The names of all former directors, current directors, or former directors, who was involved in the management or ownership of the purchaser
  • Whether any directors had given guarantees for amounts due from the company to a prior financier, and whether that financier is financing the new business

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