Review to scrutinize pre-packs

THE government has announced an independent review into pre-pack administrations.

This is where a sale is lined up, often to existing directors, before a company is put into administration.

According to official figures there were 723 pre-packs in 2011 – the most recent year where figures are available. This represented a quarter of all administrations that year.

It is controversial because it often leaves creditors with unpaid bills while the insolvent company continues under a different name. The insolvency profession defends the process because it can save jobs.

A statement issued by the Insolvency Service said: “The government has listened carefully to the concerns of creditors about pre-packs and that is why we already have measures in place to increase transparency and prevent abuse. Strengthened measures are being introduce to improve the quality of information insolvency practitioners are required to provide on pre-pack deals and we are using targeted monitoring of outcomes to assess whether there is evidence of abuse.

“Used appropriately, pre-packs can be a highly effective process to ensure the best deal for creditors by better enabling the rescue of businesses, preserving value and safeguarding jobs. The independent review announced by the Minister will enable further evidence to be assembled on how pre-packs are working in practice and whether further steps are needed.”

The review will be launched in late spring.

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