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Pre-Pack Regulations - Evaluating the Evaluator: the insurer (hopefully) saves the day...2nd March 2021 Restructuring & Insolvency
The proposed new regulations to safeguard the proprietary of pre-packs have caused alarm in the profession, one of the areas of concern being the requirement that the Evaluator central to the process requires no professional qualifications but thankfully are qualified if they think they are (yes, you did detect some sarcasm).
The Regulations will mean that an administrator cannot execute a pre-pack if the following applies:
- The sale is of all or substantially all of the insolvent company's business or assets.
- It is within the first eight weeks of an administration.
- The disposal is to one or more persons connected with the company.
- Either the administrator has not obtained the approval of creditors or the purchaser has not obtained and provided a "qualifying report" of an evaluator.
The lack of professional qualifications to qualify as an Evaluator to act under the Regulations is a concern for two reasons: firstly, there is concern that an unqualified Evaluator will make the wrong decision and secondly, ‘cowboys’ entering the market and approving any sale, irrespective of merit, for payment.
Since the initial draft of the Regulations was published, a requirement has been introduced for an Evaluator to have professional indemnity insurance before acting as such.
Whilst not directly addressing the concerns, one would hope that insurers will be cautious as to who they offer insurance to. Taking this a step further, one may hope that reputable insurers would only be comfortable offering such insurance to...licensed insolvency practitioners only, indeed as part of their existing policy.
The credibility of the process may yet be saved by the insurers, rather than the legislature.