A quick look at what’s been happening on pre-packs

There are 3 developments on pre-packs to note – 2 domestic and 1 further afield:

• hardly anybody is using the Pre-Pack Pool: the introduction of the Pre-Pack Pool reforms never really took off. The latest Insolvency Service Annual Review of IP Regulation shows just 18 voluntary referrals were made last year – out of an eligible 241 connected party pre-packs. That’s just 7.5%. While we’ve said in the past that such numbers shouldn’t be the sole criteria by which success is judged, that’s clearly low;
• Government to announce results of pre-pack review: the UK Government has been carrying out a review of the impact of the Pre-Pack Pool and Viability Statement reforms and says it will announce its results “shortly”. Many expect, given the figures above, that further regulation on connected party sales is inevitable, but we’ll monitor and report back; and
• ECJ decision seems to spell end for Belgian pre-packaged sales law: the ECJ held in Re Prefaco (Case C-509/17) that the Transfer of Undertakings Directive 2001/23 precludes a 2009 Belgian law on the judicial reorganisation by transfer under judicial supervision. The ECJ effectively held that the law could not be an insolvency proceeding for the purposes of the Directive as it did not always lead to the undertaking’s insolvency. Nor did it involve the liquidation of the debtor’s assets, being aimed instead at maintaining all or part of the transferor or its activity. As such, the Belgian law could not fall within an exception to certain employee protection provisions in the Directive (which make buyers automatically liable for dismissals made because of the transfer). In purporting to allow the transferee to decide which employees to keep on, the Belgian law also violated the Directive.

As recent transactions in the UK have shown, the pre-pack continues to be a valuable tool in UK insolvency law to rescue businesses and to support wider restructurings. Future changes in this area will be of key concern, particularly seen against the background of wider UK (and EU) insolvency reforms.