Vol 21 (2024) - Issue 1

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Substantial Disposals by Administrators in the First Eight Weeks: When is the Purchaser a ‘Connected Person’? – Part Two, More Detailed Analysis

Synopsis
Following the changes made in April 2021 by the Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021, if a substantial disposal is envisaged within the first eight weeks of an administration, the parties, in particular the administrator, need to check whether the proposed purchaser is or is not a 'connected person' with the company in administration. If the proposed purchaser is a connected person then the purchaser usually needs to provide a report from an 'independent' evaluator.
The relevant tests for being a connected person are set out in the legislation: para. 60A of Schedule B1 to the Insolvency Act 1986. However, the tests are rather complex and use many other concepts (which themselves can be tricky) from other parts of the legislation – such as 'associate', 'director', and 'officer'.
Part 1 gave an overview and a potential checklist.
This Part 2 gives a more detailed technical analysis.
Part 3 looks at the 'independence' test for an evaluator.
This Part looks at the connection tests relevant in deciding on the application of the restrictions in place from April 2021 on substantial disposals by an administrator within the first eight weeks of the administration. It looks at the relevant connection for who is a connected person – the new post-April requirements only apply to a disposal to a 'connected person'.
The new statutory requirements were introduced on and from 30 April 2021 by regulations under the Insolvency Act 1986 ('IA 1986'), Schedule B1, paragraph 60A3 ('para. 60A'). The regulations are the Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 20214 (the 'Administration Disposal Regs 2021').
These apply on a 'substantial' disposal by the administrator of a company in administration of a business or assets of a company in administration in the first eight weeks of the administration. Broadly, the administrator must not make such a substantial disposal in the first eight weeks to a 'connected person' unless the company's creditors have consented or a relevant report from an individual who is an 'evaluator' has been obtained.
The new requirement is either:
– to obtain advance creditor approval for the disposal (by including it in the statement of proposals under IA 1986, Sch B1, para. 49, and obtaining creditor approval to it – Administration Disposal Regs 2021, reg 4); or
– a connected person obtains a qualifying report from an 'evaluator' (Administration Disposal Regs 2021, regs 5 to 8). If this route is followed and a disposal is made, the notification requirements in reg 9 must also be met.
The requirements only apply for disposals which both:
(a) are made in the first eight weeks of the start of the administration; and
(b) where the disposal, hiring out or sale involves all or a 'substantial part' of the company's business or assets. This could involve one or more transactions.