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New pre-pack rules don't go far enough, says British Property Federation

Published: 1 April 2011
The Government has announced proposals to improve the transparency of pre-pack administrations, but the British Property Federation says the new rules don't do enough to stop the system being exploited.
New pre-pack rules don't go far enough, says British Property Federation
Pre-pack administrations are often criticised as being open to abuse, as they allow businesses in trouble to be quickly sold to new owners, often existing management, without consulting creditors.

The proposed reforms will require administrators to give a three-day notice period to creditors when they intend to sell a significant proportion of a company's assets or business to a connected party, enabling creditors to "express concerns" or apply to the court to prevent the sale from going ahead.

However, the BPF has said that this period is insufficient given the extent of the examination of a business that would have to occur during that time.

Commenting on the announcement yesterday, BPF assistant director James Anderson said: "The system is most open to abuse in pre-pack sales to connected parties - sales that often occur with limited or no marketing of the business, at speed, and with the sale presented as a fait accompli to creditors.

"Today's announcement takes steps to improve the system for creditors, which is welcomed. However, more time should be given to creditors for them to analyse pre-pack deals to connected parties. The three-day period is not sufficient in our view, and should be extended to one week."

The new measures also mean insolvency practitioners will need to provide a SIP16 notice - a detailed explanation of why a pre-pack sale is the best option - to creditors at the time of their administration proposals. These will also need to be posted at Companies House, making the information available to the business as a whole, including credit reference agencies.

The Confederation of British Industry's director for competitive markets Matthew Fell commented: "Pre-packs can help save businesses and jobs, but they often come at a high price for creditors. These reforms should add greater transparency to the process and ensure creditors get their voice heard. Pre-packs should only be used for legitimate rescue efforts, and not just as a vehicle for incumbent management to carry on with business as usual, having shed their original debts."

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