Comply with The Statement of Insolvency Practice 16 or else

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Court declines to authorise a pre-pack sale as the administrators hadn’t complied with certain insolvency practice provisions and the proposed purchasers were connected with the current directors.

A once profitable civil engineering company failed and the administrators proposed a pre-pack sale. Advertisements were placed on two websites, but potential buyers had less than 48 hours to register interest. Only one offer was received, incidentally from a company connected with the directors of the failed company.

The Statement of Insolvency Practice 16 (SIP 16) points out that there is high level of public interest in pre-pack sales, especially to parties connected with the current company. SIP 16 also requires conformity to the ‘marketing essentials’ set out in its appendix.

In this case, the administrators failed to adhere to the marketing essentials by not consulting a “pre-pack pool” of potential buyers and by providing no explanation as to why the company should be sold to connected parties for a fraction of its book value.

Accordingly, the court would not make the administration order. Instead, an adjournment was allowed to give the company and administrators an opportunity to reconsider the evidence and ensure compliance with the marketing provisions of SIP 16.

Re Moss Groundworks Limited [2019] EWHC 2825 (Ch)

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