So-called phoenix companies, because of the way they rise form the flames, are the subject of new proposals from business, innovation and skills minister Edward Davey, who has responsibility for the insolvency regime.
These pre-pack administrations will still be allowed but creditors will have to be informed to enable to them to apply for a court injunction stopping the sale processing if they are unhappy.
Mr Davey said: “The merits of pre-pack sales have continued to be the subject of much debate. I recognise that such sales offer a flexible and speedy means of rescue and can be the best way of maximising returns for creditors. We do not wish to outlaw them. But they must be done fairly and reasonably. Particular concerns have been raised about sales of assets back to the current management, or other connected party, something that is often referred to as ‘phoenixism’. Where such sales are at undervalue, creditors get less than they should. Competitors who pay their debts in full also suffer. I want to make sure that creditors have a fair chance to have their voice heard. I also want to enable others to scrutinise such transactions after the event to ensure that deals being struck are fair in the circumstances.”
He added: “In order to inject greater transparency into the process we intend to require administrators to give notice to creditors where they propose to sell a significant proportion of the assets of a company or its business to a connected party, in circumstances where there has been no open marketing of the assets. This will enable creditors to express concerns, which the administrator would need to consider or, where the circumstances justify it, apply to the court to prevent the sale from taking place.
“Administrators already need to provide a detailed explanation of why a pre-pack sale was undertaken to creditors in compliance with professional standard Statement of Insolvency Practice 16. These will in future need to be included in their administration proposals which are lodged at Companies House, making the information available to business as a whole, including credit reference agencies. Administrators will also need to confirm that the sale price represents best value for the creditors.”
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