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| | | | 16/06/2014 | Drapers, Kirsty McGregor - Government unveils plans for greater scrutiny of pre-packs | | | | | Pre-pack administrations will be subject to greater scrutiny under reforms | | | | | Drapers reports that pre-pack administration arrangements will be subject to greater scrutiny under reforms announced by the government.
The government has accepted recommendations made by regulation expert Teresa Graham, who was commissioned to carry out a review of pre-packs by business secretary Vince Cable last summer.
Graham found many individuals and small businesses were concerned about the fairness of these deals. To address this she has made six recommendations aimed at making the process more transparent, boosting survival rates of new businesses and improving financial returns to creditors.
She said pre-packs had a 'unique place' in the insolvency market, but there must be 'major changes' in the way they are administered.
The business minister Jenny Willott said today the government would introduce a range of voluntary measures, with a view to legislating at a later date 'if necessary'.
One of the key recommendations is the creation of a 'pre-pack pool'. This encourages parties in a deal that have an existing connection to the company going into administration to approach an independent person to discuss the details of the proposed sale, prior to a deal taking place. If that idependent person does not support the deal, this should be disclosed to creditors.
Interested parties will also be expected to complete a viability review of the company in administration, to ensure businesses with fundamentally unviable models are not being allowed back into the marketplace "post pre-pack, shorn of old company debts, often to fail again", Graham said.
Last year 2,365 businesses in the UK went into administration. Of these around 600 were subject to a pre-pack deal. |
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