Insolvency Expert Cautious On Pre-Pack Rule Changes

Government Announce New Rules

01.04.2011

New changes to government rules on pre-pack sales have been given a cautious welcome by an insolvency expert at Irwin Mitchell.

The Insolvency Service has confirmed that changes are being made to the rules in order to ultimately improve transparency and confidence in pre-packaged sales in cases of administration, with measures including a three-day notice period set to be introduced.

According to business minister Ed Davey, it is particularly hoped that the new standards will ensure all deals in the area of insolvency are concluded both fairly and reasonably.

Discussing the changes, Andrew Walker, a Partner at Irwin Mitchell and the Yorkshire chairman of insolvency professionals association R3, suggested it will be interesting to examine the impact they have.

He explained: “Any measure that boosts confidence in the pre-pack procedure is to be broadly welcomed.
 
"However 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, the business is at risk of losing key staff and customers.

"When faced with this option, directors may simply decide that liquidation is a better route, and this would reduce returns to both secured and unsecured creditors and result in considerably fewer jobs being saved than under a pre-pack.”