The government's decision not to implement proposed changes to the law on
pre-packaged administrations has met with a frosty reception from channel credit experts.
A pre-pack occurs when a company's sale is agreed before it goes under and is executed as soon as an administrator is appointed.
Supporters point to the expedience of the process, and its ability to save companies and jobs. But critics have long opined that pre-packs can leave creditors high and dry and that many deals are too easily and cynically constructed.
The government's proposals considered giving creditors a three-day consultation period before the sale of a distressed firm to a related party, such as existing
or former managers - creating a so-called phoenix company. Proposals to introduce a single regulator for insolvencies were also on the table.
But in a ministerial statement last month Ed Davey, minister for employment relations, consumer and postal affairs, said: "The government is not convinced that the benefit of new legislative controls outweighs the overall benefit to business of adhering to the moratorium on regulations affecting microbusiness."
The Insolvency Service is to conduct "an urgent review" into what can be done to "improve confidence and transparency" in the process.
Laurie Beagle, divisional director at P&A Receivables, said: "We were hoping for a delay to ensure that, when a company goes into insolvency, it can find the best buyer. That may well be the original management team. At the moment, that seems to be the easy way out. I do not understand why the government has decided to pull out of these changes."
The Institute of Credit Management has also expressed its dismay that the regulation has "been kicked into the long grass". Restoring creditors' confidence in the process is critical, according to ICM chief executive Philip King.
"Plans to improve the transparency and disclosure of fee charging in light of any new complaints regime will go a long way to rebuilding trust between the parties," he said.
Eddie Pacey, managing director of EP Credit Management and Consultancy, claimed he was "disappointed" that changes were not implemented, but suggested that the regulator format would not work.
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