Pre-pack sales still divide opinion – what the connected party rules change in practice

Pre-pack sales, albeit popular, often divide public and creditor opinion when a connected party is on the other side of the transaction. More than five years after independent scrutiny of connected party pre-packs became mandatory, these rules have helped defend pre-pack administrations and protect the integrity of the rescue tool.

As a licensed Insolvency Practitioner of over 25 years, I've observed two decades of change in the insolvency market, including the rise of pre-pack administrations, and the regulatory framework designed to govern them. I look at the appetite for pre-pack administrations, the controversy surrounding connected party sales and what the rules have changed in practice.

Have connected party rules changed the appetite for pre-pack administrations?

Appetite for connected party sales has remained strong since the new rules were introduced in 2021. According to the Insolvency Service's annual review of Insolvency Practitioner regulation, connected party sales rose from 106 in 2021 to 395 in 2024, while pre-pack administrations overall climbed from 201 to 628. In 2024, the latest year with published figures, connected buyers accounted for around six in ten pre-packs, up from roughly half in 2021.

Before the guardrails were introduced, unsecured creditors had little insight into the sale process, including the price, until after a sale had been agreed, and the voluntary Pre-Pack Pool had little uptake. Since April 2021, a connected party sale has needed either an independent evaluator's report or creditors' approval, the latter being the rarer option.

The data shows that the rules, which introduced independent scrutiny in the form of an evaluator's report, haven't deterred connected buyers. In practice, directors are more prepared for scrutiny over a sale, and creditors have greater transparency into the process and receive an independent assessment of the price, which they rarely had before.

Has independent scrutiny restored confidence in connected party sales?

While there has been much conversation around the credentials of independent evaluators and their relationships with connected parties, it's fair to say confidence has largely been restored. Julie Palmer, Managing Partner at BTG Begbies Traynor, wrote about this in R3’s newsletter in Autumn 2024. In 2024, 394 of the 395 connected party sales went through an independent evaluator, and creditor approval was used just once, according to the Insolvency Service's 2024 annual review.

In my experience, pre-pack deals are now better prepared where a connected party is involved. Once an Insolvency Practitioner confirms that the buyer is rescuing a viable business with a credible plan in place, the evaluator's report addresses these key questions.

• Is the connected offer the best available? If an open market deal would attract a better offer, the reasons for not doing so must be justified.

• Does the price stand up against an independent valuation of the business and its assets?

Bai Cham, Partner at BTG Begbies Traynor, supported camera technology manufacturer Mo-Sys, through a pre-pack administration, where its chief executive personally backed the purchase alongside co-investors, with 57 jobs transferring to the new company. The pressure had come from a funding partner changing direction after a two-year R&D programme, rather than from a failed business model.

Where can connected party sales still fall short?

Independent scrutiny tests a deal at the point of sale, but it can't guarantee what happens next, particularly how the price is paid and whether the new business can keep trading.

Deferred consideration: Where a connected buyer pays in instalments, creditors' returns depend on the new company performing, so the security behind those payments matters as much as the headline price.

Viability: When the government last reviewed pre-packs, before the regulatory reforms were introduced in 2021, just over a quarter of connected party sales in 2016 included a viability statement setting out how the new business would survive. Viability statements are becoming more common as a matter of best practice, so I expect the figure to be higher today.

What makes a connected party sale stand up to scrutiny?

A connected party sale stands up to scrutiny when it can be defended to a creditor, not just an evaluator. For Insolvency Practitioners, that means checking:

• The best offer was accepted, unless otherwise justified

• An independent valuation supports the price

• Any deferred consideration is adequately secured and subject to a realistic payment schedule

• The buyer has a credible plan to keep trading

• Creditors receive a clear SIP 16 statement and the evaluator's report

Since March 2026, the Insolvency Service no longer collects SIP 16 data after deeming the area low-risk, leaving monitoring to the professional bodies. As such, the profession's commitment to transparency will be essential to maintaining confidence in connected party sales and preserving pre-packs as a rescue tool.

Dave Broadbent is a licensed Insolvency Practitioner and Partner at BTG Begbies Traynor, with more than 25 years' experience in the insolvency profession. He is R3's former regional chair for Yorkshire and the Humber and writes on behalf of Insolvency Practitioners.