Trade body R3 has warned that new insolvency regulations could reduce the number of pre-packaged sales of troubled firms, leaving creditors out of pocket.
Pre-packs, when a deal is put in place before a firm goes under and signed when the business enters administration, have long caused consternation among channel players. In a bid to make the process more transparent, pre-pack sales to connected parties must now go through a three-day notice period prior to completion.
R3 claims that, if a business has to endure three days without trading, it could lead to liquidation being chosen as the firm's preferred route out, simply by virtue of being easier. Companies' value could also depreciate, leaving more debts unpaid and more staff out of a job.
"Any measure that boosts confidence in the pre-pack procedure is to be broadly welcomed," said R3 president Steven Law. "However, it is important to note that a pre-pack is chosen is 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 is at risk of losing key staff and customers."
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