What Happens if an Evaluator Report Is Negative?
A connected purchaser obtaining an Evaluator Report will understandably want the Evaluator to support the proposed transaction.
But what happens if they do not?
Does a negative Evaluator Report automatically prevent the sale?
Can another Evaluator be instructed?
And can the administrator still sell the business to the connected purchaser?
The position is more nuanced than many purchasers expect.
The quick answer
A negative Evaluator Report does not automatically stop the proposed sale.
Furthermore, before it reaches that stage, the Evaluator will be in discussions with you to determine whether any further information is required to better understand the sale. This heads off nearly all requirements, but in the rare event that the sale just doesn’t add up…
Under ARR 2021, the Evaluator must reach one of two conclusions.
They will state either that they are:
satisfied that the consideration and grounds for the proposed disposal are reasonable in the circumstances; or
not satisfied that they are reasonable in the circumstances.
The second is formally referred to in the Regulations as a “case not made opinion” and is commonly described as a negative or adverse Evaluator Report.
Even where the Evaluator is not satisfied, the administrator can still decide to proceed with the transaction.
However, the administrator must consider the report and, if they proceed despite an adverse conclusion, explain their reasons for doing so.
For an explanation of the Evaluator’s role and the two possible conclusions, see What Is an Evaluator Report Under ARR 2021?
{INTERNAL LINK → /blog/what-is-an-evaluator-report-under-arr-2021}
What does “not satisfied” actually mean?
It is important to understand what the Evaluator is being asked to decide.
The Evaluator is not deciding whether the purchaser is a good person, whether the business deserves to survive or whether the administration itself should take place.
The focus is the proposed disposal.
The Evaluator considers whether they are satisfied that:
the consideration being provided for the relevant property is reasonable; and
the grounds for making the substantial disposal are reasonable in the circumstances.
If the available evidence does not allow the Evaluator to be satisfied on those points, the report must say so.
Why might an Evaluator not be satisfied?
There can be many reasons.
For example:
the proposed price is not adequately supported by valuation evidence;
there is insufficient information explaining why the offer represents a reasonable outcome;
important assets appear not to be adequately reflected in the consideration;
the terms of deferred consideration raise concerns;
there is insufficient evidence that the purchaser can meet future payments;
information reasonably required by the Evaluator has not been provided;
the proposed sale has not been adequately explained;
there are inconsistencies between the purchaser’s offer and the supporting information;
a previous Evaluator Report has raised concerns which have not been addressed.
An adverse conclusion does not necessarily mean there has been wrongdoing.
Sometimes the problem is simply that the evidence available to the Evaluator is insufficient.
That is why providing a clear information pack at an early stage is important. Our guide explains what information is needed for an Evaluator Report and why each part matters.
{INTERNAL LINK → /blog/what-information-is-needed-for-an-evaluator-report}
Can the administrator still complete the sale?
Yes.
An Evaluator does not approve or reject a transaction.
The final decision on whether the administrator should complete the disposal remains with the administrator.
The administrator is required to receive and consider the qualifying report, but is not bound to follow the Evaluator’s conclusion.
There may be circumstances where the Evaluator is not satisfied but the administrator nevertheless considers that proceeding with the sale produces the best available outcome for creditors.
For example, the administrator may have information about competing offers, the deteriorating position of the business, marketing activity or the consequences of failing to complete which affects their decision.
Does the administrator have to explain why they proceeded?
Yes.
Where the transaction proceeds despite an adverse Evaluator conclusion, the decision cannot simply be ignored.
The administrator must provide a statement explaining why they decided to proceed notwithstanding the Evaluator’s opinion.
The Evaluator Report is also provided to creditors and filed at Companies House with the administrator’s proposals, subject to the provisions relating to confidential or commercially sensitive information.
This transparency is an important part of the ARR 2021 framework.
The purpose of the Evaluator Report is not simply to introduce another procedural hurdle. It is to provide creditors with independent scrutiny of a connected-party transaction.
Our Evaluator Report FAQs answer some of the shorter questions about the administrator’s role and what happens after a report is produced.
{INTERNAL LINK → /faqs}
Can the purchaser simply obtain another Evaluator Report?
A purchaser is not prohibited from obtaining more than one Evaluator Report.
However, ARR 2021 contains specific requirements dealing with previous reports.
A purchaser cannot simply disregard an unfavourable report and start again as though it never existed.
Where a previous report has been obtained, it must be dealt with in any subsequent Evaluator Report in accordance with the Regulations.
The rules are designed to provide transparency where more than one opinion has been sought and to discourage “opinion shopping”.
Can You Get a Second Evaluator Report? will look at this issue in detail.
{FUTURE INTERNAL LINK → new article once published}
What if the first report was based on missing information?
This can be particularly important.
An Evaluator may be unable to become satisfied because key information was not available.
That does not necessarily mean the underlying transaction could never be considered reasonable.
If additional evidence later becomes available, or the proposed transaction changes, the position may need to be reconsidered.
The important point is transparency.
The existence and contents of the earlier report cannot simply be ignored.
If there has been a previous Evaluator Report, tell the Evaluator at the outset and provide a copy where available.
Can the offer be changed?
Yes.
The purchaser may decide to change the terms of its offer in response to concerns identified during the transaction.
For example, it might:
increase the purchase price;
change the treatment of particular assets;
alter deferred payment terms;
provide additional security;
provide further evidence supporting its ability to pay;
address concerns identified during the evaluation process.
Where a material change is made to the proposed disposal after an Evaluator Report has been completed, a further report is required for the amended proposed disposal.
The new report can then consider the transaction the administrator is actually being asked to complete.
Should the purchaser be worried if the Evaluator asks difficult questions?
Not necessarily.
An Evaluator is required to be independent.
That means the process will sometimes involve questions about valuation, price, funding, marketing, payment terms or the reasons for the transaction.
Being asked for additional information does not mean the Evaluator is intending to reach an adverse conclusion.
Quite the opposite: asking questions may allow the Evaluator to understand an issue which would otherwise remain unexplained.
The objective should be to make sure the Evaluator has enough reliable information to reach a properly reasoned view.
Admin Eval’s approach is to identify any information gaps or questions as early as possible. You can see how our Evaluator Report service works in practice on our services page.
{INTERNAL LINK → /services}
What should you do if there has already been a negative report?
Raise it immediately.
Do not wait until the end of the process.
Provide:
a copy of the previous report;
details of the transaction considered by that Evaluator;
an explanation of any subsequent changes;
any additional valuation or financial evidence;
details of how concerns raised previously have been addressed.
Early disclosure gives the Evaluator the best opportunity to understand the history of the transaction.
It also avoids unnecessary delay.
How Admin Eval approaches difficult cases
Admin Eval’s role is to provide an independent opinion, not to guarantee a particular outcome.
However, independence does not prevent the process from being practical and constructive.
Where information is missing or an issue requires clarification, we aim to identify that early and explain what additional information may be required.
We work with connected purchasers and their professional advisers to understand the proposed transaction while maintaining the independence required by ARR 2021.
Our aim is that there should be no unnecessary surprises at the end of the process.
If you want to understand the background and experience of the people carrying out our reports, you can meet the Admin Eval Evaluators here.
{INTERNAL LINK → /about}
Have you already obtained an Evaluator Report?
If you have already approached another Evaluator, received a report or have concerns about an earlier evaluation, tell us at the outset.
We can explain what information will be required and how the previous report needs to be dealt with as part of the ARR 2021 process.
Contact Admin Eval for an initial discussion.
{INTERNAL LINK → /contact}
Email: enquiries@admineval.co.uk
Telephone: 07824 348338
FAQs
Does a negative Evaluator Report stop a pre-pack sale?
No. The administrator may still proceed, but must consider the Evaluator Report and explain their reasons for proceeding notwithstanding the adverse conclusion.
Can the Evaluator reject the sale?
Not in the sense of having a veto. The Evaluator provides an independent opinion. The ultimate decision whether to complete the transaction remains with the administrator.
Can I obtain a second Evaluator Report?
Potentially, yes, but the previous report cannot simply be ignored. ARR 2021 contains specific requirements dealing with previous reports.
Do I have to disclose a previous Evaluator Report?
Previous reports need to be dealt with transparently as part of the ARR 2021 process and should be raised with the Evaluator at the outset.
Can changing the purchase price resolve a problem?
Potentially. A revised price or other change may alter the Evaluator’s assessment. Where the proposed disposal is materially changed after a report has been completed, a further report is required.
What if the problem was simply missing information?
Providing additional information may help address the issue, but the previous report remains relevant and must be dealt with transparently.
