Today the proposed mandatory connected party pre-pack regulations scheduled to come into force on 30 April 2021 were effectively nodded through the Commons having been debated in the Lords, at short notice, last evening. 

Frankly precious little debate occurred in the Commons today with only the Minister and Shadow Minister speaking. Last evening debated in the Lords for 1 hour. The key concerns (amongst others) raised in the Lords were:

- whether "substantial transaction" is an appropriate definition for applicability;

- the lack of specified qualifications necessary for the Evaluator and self certification;

- the ability to opinion shop by the purchaser for a report is not fully dealt with;

- the low independence test for an Evaluator and specifically only over the prior 12 months compared to existing 3 year professional conflict standards;

- whether secured lenders should be connected persons;

- general concern it does not go far enough to deal with those "gaming the system";

- concerns about the applicability to football clubs;

- reassurance that Government will monitor the implementation closely as a "work in progress" and will keep the effectiveness of the new regulations under constant review notwithstanding existing sunset provisions, so they can be amended again where necessary?

Despite these concerns the Motion was passed in both Houses without amendments it seems.

Further Guidance

Lord Callanan did however seek to reassure the Lords that further guidance will be provided to assist administrators in their deliberation and determination of:

a) whether a sale is a substantial sale for the purposes of the regulations biting and therefore, in the administrators opinion, whether there is the need for a purchaser to obtain the report at all - of course the terminology chosen is familiar to professionals as it is part of the recognised legal analysis already used to determine whether a secured lenders Qualifying Floating Charge (QFC) is in fact a qualifying one. So it will be interesting to see whether the new guidance directly follows existing law or seeks to soften the test in some way? 

b) whether the Evaluator does have sufficient knowledge and expertise to opine on the transaction - it is a challenge to understand how this will be achieved, especially as there is no penalty or consequence available to the administrator in the regulations if he concludes (whether with the guidance or not) that the Evaluator does not have sufficient knowledge or expertise in that particular case.  


Given the failure to rectify these issues in the regulations, it seems the only remaining solace before this becomes law is the reassurance Lord Callanan gave the Lords that the regulations will be monitored and can be amended in future to adapt as appropriate:

"We intend to monitor the implementation of this SI and will consider modifying or supplementing its provisions in the future if it proves necessary to do so"  later adding, "Assuming that Parliament approves these regulations, it will be possible to amend them post the prior primary power sunsetting [June 2021], so, yes, we can come back to them in the future even if the original primary power has sunsetted."

Thankfully so, as I suspect adaptation will be required for these regulations to work. Meantime professionals need to start planning now whether their existing pre-pack processes to connected parties can accommodate these new regulations and what, if anything, needs to change. It will be interesting to see absent Government making the decision within the regulations, who the market now delivers to perform the Evaluator role. 

It seems speed has prevailed over substance on this occasion. A missed opportunity notwithstanding the urgency as we move out of lockdown. It is to be hoped Government will be true to its word and monitor and listen and swiftly change the regulations as needed, informed by the qualified professionals experiences reconciling these new rules with saving as many businesses and jobs as possible.