Pictured: Andrew Taylor
The Government has confirmed that the proposed changes to the
Insolvency (Amendment) (No. 2) Rules 2011, will not be coming into
force in October as originally planned, following formal objections
from insolvency practitioners and the legal profession. The
regulations were introduced with a view to creating greater
transparency of so-called "phoenix" insolvency sales. A
"phoenix sale" occurs where an administrator or liquidator sells
the business and assets of an insolvent company immediately back to
the directors of the insolvent company, often on the day they are
appointed (known commonly as a "pre-pack".
The proposed changes in the regulations included requiring
insolvency practitioners to give three days' prior notice to
creditors of the company before completing a sale back to the
directors of that company and, also, certifying that the sale would
achieve a better result to creditors "than anything else".
Following feedback received on the initial draft regulations, a
revised version of the regulations will be published in January
2012, in order to allow sufficient time for consultation ahead of
an intended implementation date of April 2012.
Andrew Taylor, partner at the Birmingham branch of law firm
Shakespeares, said: "This is definitely good news. The draft
regulations were ill-conceived and poorly drafted. Three
days' notice doesn't allow creditors sufficient time to raise
detailed and constructive concerns, but is sufficient to destroy
any value that may be achieved by selling the business as a going
concern. As such, they went against the rescue culture that is
supposed to underpin the insolvency regime in the UK.
"Creating greater transparency on pre-pack and phoenix sales is
essential to avoid abuse of the insolvency procedures, however this
needs to be delicately balanced with the need to preserve value in
insolvent businesses for the overall benefit of all creditors. The
fact that the Government has recognised this demonstrates the value
of close consultation with the legal profession and relevant
stakeholders."
Andrew Taylor is partner at law firm Shakespeares.