Review will consider the future of pre-packs

Mar 20 2010 by Iain Laing, The Journal

Pre-packs are often used to help protect businesses from the reputational damage that can be caused by lengthy administrations and in turn help save jobs.

But there are fears they can be used by companies to cut loose of their liabilities to suppliers and creditors, particularly as company assets are often sold back to the original directors.

The Insolvency Service said it was disappointed with the industry’s response to the rules.

It confirmed that 59 cases of non-compliance last year were deemed “serious and substantive”, resulting in referral for disciplinary or regulatory action for the insolvency practitioners concerned.

The major reasons for non-compliance revolve around non-disclosure to creditors, such as failure to disclose adequately that the company’s assets were sold back to directors, failure to show how the assets had been marketed and valued, as well as problems surrounding timeliness in disclosures.

The Insolvency Service is now consulting on a range of new measures, including possible changes to law, to address concerns.

It is also reviewing whether the current rules themselves are working effectively.