The recent reported case of VE Vegas Investors IV LLC and others v Shinners and others  EWHC 186 (Ch), in which the successful applicants were represented by Clarion, serves as a pertinent reminder to Insolvency Practitioners of their need to be aware of the obvious conflict of interest which arises when deciding to proceed with a pre-packaged sale back to the directors and/or management team of a company, in an administration scenario.
The best practice ‘tips’ to reinforce are that Insolvency Practitioner’s should:
- be alive to the conflict referred to above and continuously manage that conflict, documenting the assessments and decisions made, where possible;
- document their thought process when considering the company’s options at the outset of any matter and record the reasoning behind the decision to undertake a pre-packaged sale without overlooking the first question to ask, which is whether the company can be rescued;
- in the event a rescue has been considered and deemed not viable by the directors, make the necessary enquires of the directors as to why this view has been formed, who they have spoken to and when and assess whether you should be contacting those parties directly;
- not rely solely on the directors/management team to identify or contact prospective purchasers of the business and assets, and to be involved in the marketing process from the outset of their engagement;
- prioritise the importance of obtaining as much information relating to the company as possible, and as soon as possible, for this to be sent to potential purchasers in an attempt to level the ‘playing field’ for bids; and
- ensure that all potential purchasers are given the same information by the Insolvency Practitioners, especially information such as any guidance they may give on the likely price they would accept for the business and assets.
The decision reinforces the important role pre-packaged sales have in insolvency but highlights the need to ensure that this procedure is not abused so that it remains an available option to Insolvency Practitioners.
Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.