Service: Audit and Accounting

New rules from 30 April 2021 on Corporate Administrations

By Richard Kleiner

09 Apr 2021

Mark Brumby of Langton Capital recently commented on his daily newsfeed about the new regulations coming into force on 30 April 2021.

The regulations are, to quote their official title, Administration (restrictions on disposal etc. to connected persons) Regulations 2021.

Below is a summary of the new regulations in terms of their specific requirements:

  • The new law will “introduce a requirement for a connected party purchaser to obtain a report from an independent and suitably qualified person before a pre-pack (Administration) can be undertaken”.
  • There is speculation that it is now time to think about alternative strategies such as trading whilst in Administration, possibly with a sale to a connected or unconnected party, voluntary liquidation with goodwill/assets being sold to a new company or a CVA (Corporate Voluntary Arrangement) that can keep the company intact, maximise the interest of creditors and allow for in-depth restructuring which may, in time, preserve the position of shareholders.
  • The new law states that Administrators cannot make a substantial disposal of the company’s business to connected directors or shareholders in the first 8 weeks of the Administration period unless a) creditors approve the transaction, or b) they have a qualifying report from a qualified independent “Evaluator” .
  • The Evaluator is not a position that has previously existed under legislation.  The new regulations state that the person “must have sufficient relevant knowledge, experience and appropriate professional insurance cover”.
  • Mark Brumby concludes that the new regulation is indeed new territory and will “shine a light on what could have been or could appear to have been, cosy and uncontested deals”. 

It will inevitably take some time to assess how the new legislation will impact on real-life situation – watch this space!

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