Government mulling over new pre-pack administration rules

A new draft regulation that could make the controversial pre-packaged administrations tougher to push through is to be unveiled by the Government.

A pre-pack administration is when a business falls into administration and is then sold on quickly to new owners with reduced liabilities - who have been selected beforehand.

The Department of Business, Innovation and Skills (BIS) is proposing the rolling out of a new rule that will require insolvency practitioners to give creditors three days advance warning if they are planning to sell a large share of a business to a connected group, in cases where the assets have not been marketed openly.

This regulation will allow for greater transparency within the pre-pack administration process. Currently, administrators are not obliged to give notice to unsecured creditors if they are planning to sell assets, although notice must be given to secured lenders.

Earlier this year, the BIS minister overseeing insolvency, Edward Davey, told The Independent that he wanted to ensure that 'creditors have a fair chance to have their voice heard'.

However, the insolvency trade association, R3, is against the new plans as it feels the proposed three-day notice period could lead to the sudden loss of customers.

The president of R3, Frances Coulson, told the paper, “It is important to note that a pre-pack is chosen due to the speed of the procedure which helps preserve the value of the business. Three days is a long time in business, and if unable to trade in that period, it's at risk of losing key staff and customers.”

The draft regulation is tipped to be revealed in either September or October this year.