I thank all noble Lords for their valuable contributions to this debate. Yet again the House has shown the great value of the experience in this area with some very valuable and well-thought-through contributions. I say to my noble friend Lord Hodgson that I had no say in the timings of the debate, but I know that the noble Baroness, Lady Bloomfield, has taken careful note of his comments and will reply to him directly about the timescales.
Pre-pack sales are of significant interest in our economy and this is reflected in many of the comments made today. They are a valuable rescue tool where a company in financial difficulties has underlying value and is potentially viable. This is particularly relevant in the current economic climate, with many businesses struggling with the impact of the pandemic. Having a range of rescue vehicles for viable businesses within the insolvency framework will aid the recovery of our economy.
The power under which these regulations are made would potentially have permitted regulations to be made banning pre-pack sales to connected persons completely. It was clear from the government review of the 2015 industry measures that stakeholders believe that the opportunity to pre-pack a business to a connected person should be preserved.
In some circumstances, the business only has value to those connected to the insolvent company and a pre-pack sale is the best way to preserve that value for the creditors. However, it was recognised that there needs to be a stronger regulatory framework to prevent the risk of abuse for creditors.
The Government consider that these regulations will provide the additional safeguard and transparency of independent scrutiny while still enabling the rescue of viable businesses through a pre-pack sale. Let me assure the noble Lord, Lord Mendelsohn, that, subject to parliamentary approval of this statutory instrument, the Government will monitor its implementation to see how the regulations operate in practice. We will also provide guidance to assist connected persons, evaluators and administrators to understand their responsibilities under these regulations. In addition, we are working with the industry to strengthen professional standards for pre-pack sales.
The legislative and non-legislative changes will be monitored together to see whether they meet the objective of improving transparency and creditors’ confidence. If there is evidence that problems persist or that new issues have arisen, the Government will consider whether further changes are needed, including whether pre-pack sales should be banned altogether. Likewise, if there is evidence that the regulations are impeding legitimate rescue attempts, we will consider whether further adjustments are needed. As the economy and businesses strive to recover from the impacts of Covid-19, it is important that we have flexibility within our insolvency and restructuring framework. This will allow companies in financial distress to find the right mechanism to best help their particular circumstances, while balancing the needs of those affected by the insolvency to ensure that they are treated fairly and have confidence in the process.
With the time I have remaining, let me deal with a number of the questions that were asked. The noble Lords, Lord Mendelsohn, the noble Baroness, Lady Bowles, and my noble friends Lord Hodgson and Lady Neville-Rolfe, all asked why we did not mandate opinions from Pre Pack Pool; indeed, many noble Lords have asked me about this separately. The reason this did not prove possible is that it is a private limited company, so there are wider legal implications—both under competition law and in the scope of the regulation-making power—for seeking to make a single private company a monopoly provider of authorisations to take certain steps under insolvency law.
The noble Lord, Lord Mendelsohn, asked why the regulations do not define what is meant by “substantial” and whether there will be guidance on this matter. Since what constitutes a substantial sale may be different in any given case, depending on the nature of the business, this has been left to the administrator’s judgment. “Substantial” is used elsewhere in insolvency legislation, so administrators are used to making this type of judgment in the normal course of their duties. However, examples will be provided in guidance as to what may constitute a substantial sale in a particular case to aid the administrator. Also, on using “significant” or “substantial” in the definition, “substantial” is used
elsewhere in insolvency legislation, so insolvency practitioners are already familiar with the term. However, again, we will monitor the impact.
The noble Lord raised the issue of secured lenders. Some secured lenders will potentially be caught by the definition of “connected persons” where they are entitled to exercise more than one-third of the voting rights. As with all good provisions, we will of course keep this under review.
The noble Lord also asked why the regulations do not make the administrator responsible for obtaining a report at the connected party’s expense. As the vast majority of pre-pack sales are arranged prior to an administrator’s appointment, with the sale completed on day one, placing a requirement on the administrator to be responsible for obtaining the opinion would cause a delay to the sale, which would increase costs and potentially hinder the business rescue.
My noble friends Lady Neville-Rolfe and Lord Hodgson, and the noble Lord, Lord Mendelsohn, asked whether we intend to review these regulations when they are in force. As I said earlier, 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. We will work with the insolvency regulators, professional bodies and opinion providers that are implementing the regime to work out whether any changes are necessary.
A number of noble Lords—my noble friend Lady Neville-Rolfe and the noble Lords, Lord Vaux, Lord Foulkes and Lord Lennie—asked me about a list of approved providers or evaluators. The Government take the view that this would be an unnecessary administrative burden on government at a time when public resources and expenditure are under severe pressure. A person whose knowledge and experience are suitable in one context might be unsuitable in a different context. A list would not therefore remove the need to consider whether a person’s knowledge was sufficient on a case-by-case basis.
The qualification requirements for evaluators was raised by the noble Lords, Lord Vaux, Lord Foulkes and Lord Lennie. As I said earlier, the administrator will need to be satisfied that the evaluator has sufficient knowledge and experience to produce the report and meet the other requirements of the regulations. Guidance will be provided for administrators to help them meet those conditions. We recognised where there were stakeholder concerns about this issue and subsequently strengthened the regulations by including a requirement that the evaluator hold professional negligence insurance.
The noble Lord, Lord Vaux, asked about the requirement for further reports and a potential penalty. There would be difficulties in introducing new penalties via the regulations and we have aimed to take a proportionate approach. The noble Lord asked also why the restriction on providing previous professional advice is limited to 12 months. A three-year restriction might impact the number of available suitable individuals able to provide an opinion, so is too long a period. We consider that 12 months is appropriate.
The noble Lord, Lord Foulkes, the noble Baroness, Lady Bowles, and other noble Lords asked about timing. Assuming that Parliament approves these regulations, it will be possible to amend them post the prior primary power sunsetting, so, yes, we can come back to them in the future even if the original primary power has sunsetted.
The noble Lords, Lord Foulkes and Lord Lennie, asked why the regulations allow the administrator to proceed with a sale if the evaluator provides an unfavourable report. I dealt with this in my opening remarks. The regulations provide a specific role for the evaluator which is confined to the provision of the report and determination of whether the grounds and the consideration to be provided for the sale are reasonable. The administrator is an officer of the court and has a statutory duty to act in the best interests of creditors as a whole.
The issue of Scotland was raised, as usual, correctly and appropriately, by the noble Lord, Lord Foulkes —it allows me to make a comment also about the other devolved Administrations. All the devolved Administrations have been informed of the intention to regulate, and officials have kept closely in touch with devolved colleagues on the proposals. If these regulations are approved by Parliament, they will apply in England, Scotland and Wales. An equivalent power to regulate connected persons sales in administration for Northern Ireland was created by the Corporate Insolvency and Governance Act 2020.
The noble Lord, Lord Mann, raised Football Index and Exeter City Football Club. We recognise the serious concerns of Football Index customers about these developments and the worry that will have been caused. I understand that the Gambling Commission has been investigating this company for some time and has suspended the operator’s licence while it continues. The Secretary of State for Culture and the Minister for Media and Data have met the Gambling Commission twice in the past fortnight to discuss this issue and have requested and received urgent updates. The noble Lord will understand that I cannot comment on an ongoing investigation, beyond saying that we are closely monitoring the situation.
The noble Lord, Lord Lennie, asked about banning pre-pack sales. I dealt with that earlier; it is possible we might come back to this in future if it proves not to be working. The noble Lords, Lord Vaux and Lord Lennie, raised the issues of the evaluator being a regulated professional and of how creditors can be assured that the report has been produced by someone with suitable skills. The regulations require that the individual providing the report should have professional indemnity insurance cover, as I said earlier.
I think I am out of time; I apologise to noble Lords whose questions I have not answered. If necessary, I will come back to them in writing. In conclusion, I believe that, by strengthening the legislative framework for sales to connected persons in administration, these draft regulations meet the challenge set for us. I therefore commend them to the House.