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Reforms to ‘pre-pack’ administrations have been welcomed by R3, the trade body for insolvency professionals.

The changes include the introduction of an independent ‘pool’ of experts to review pre-pack sales to directors, shareholders or other ‘connected parties’, and new rules on marketing and valuing struggling businesses to improve the chances of a higher return for creditors.

A ‘pre-pack’ is where the sale of a company’s business and operations is arranged prior to the company entering administration, with the sale completed shortly afterwards. The purchaser may be a ‘connected party’ – someone already involved with the business.

Richard Wolff, North West Chair of R3 and Head of Corporate Recovery and Insolvency at law firm JMW, said: “Independent research shows that pre-packs help to keep businesses trading and save jobs and it is important that steps are taken to improve trust and transparency in how they work.

“Many modern businesses have few assets to sell so where a company becomes insolvent, delayed action simply results in the loss of key staff or customers. A pre-pack sale may be the only option.

“We particularly welcome the new marketing and valuing guidance which will help insolvency practitioners to tread the difficult line between transparency for creditors and the discretion needed to secure businesses and jobs are rescued. The independent pool of experts will provide further assurance that a pre-pack is in the best interests of creditors.

“These reforms will help to ensure that pre-packs can continue to make an important contribution to the UK’s insolvency regime, which is ranked as one of the world’s best by the World Bank.”