‘Cynical’ pre-pack reforms to be published this week

PROPOSALS to reform “pre-pack” insolvencies are “cynical”, insolvency practitioners have said.

The Insolvency Service will this week publish draft proposals to force administrators to give all creditors three days’ notice, when selling the business back to a connected party in a pre-pack, the Financial Times reports.

However, insolvency experts warn the planned reforms would dramatically slow the quick process down, handicapping a valuable tool for administrators and potentially leading to more company collapses.

Mike Jervis, PwC partner and one of Lehman Brothers Europe’s lead administrators, said the proposals come “from a rather cynical view of pre-packs which, while you can understand the view, will make the advantages – speed, continuity of business and employment – that much harder to achieve”.

In a pre-pack a business is marketed before entering administration and sold immediately after. The reforms are designed to prevent abuse of this process and allay fears that management can use it to buy their ailing business at a low price and shed debts.

However, it is feared the proposed three-day notice period might create the uncertainty and business discontinuity that “pre-packs” are designed to avoid.

Peter Cranston, past president of the Insolvency Lawyers’ Association, said: “There is great concern in the industry that we’re sleepwalking into something which aims to address perceived evils at the lower end of the market, but which will ultimately affect the whole market.”

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