A government review of pre-packaged administrations has been welcomed by the insolvency trade body R3.
The review, led by accountant Teresa Graham, confirms that pre-packs do save jobs and reduce costs. However she makes a number of recommendations to improve confidence in pre-pack deals.
Pre-packs occur when a struggling business is sold on or immediately after the appointment of administrators, in some cases to existing directors. Insolvency practitioners say that a rapid sale can be essential as it is sometimes difficult for a business to continue trading once it becomes known that it is in financial distress.
In her report, published today, Ms Graham suggests setting up a pool of experienced business people who can review pre-pack deals which are brought to them on a voluntary basis. She also recommends that insolvency practitioners should ensure that the business is properly marketed and that the buyers should complete a viability review to demonstrate that the new business has a realistic chance of success.
Richard Wolff, North West chair of R3 and Head of Corporate Recovery and Insolvency at JMW Solicitors, said: “Teresa Graham’s report is an excellent contribution to the pre-pack debate. We fully support her conclusion that there is a place for pre-packs in the UK’s insolvency framework.
“As the report says, pre-packs can help save jobs and do provide benefits for creditors too. The report will help dispel some of the myths that exist around the pre-pack procedure.
“Debate around pre-packs has long suffered from a lack of empirical evidence and it is clear that this report helps plug that gap.
“The report’s recommendations are innovative, measured, and certainly well worth exploring. There is no doubt that balancing transparency and the need to protect the value of a business in financial difficulty is difficult to achieve but many of the review’s proposals may help to redress this balance.
“It is also encouraging to see that the report’s recommendations focus on more than just the insolvency practitioner’s role in a pre-pack. In particular – and rightly so – the report would seem to turn the spotlight far more on directors involved in a connected party pre-pack.”