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Pre-packs defended as a tool which can "rescue jobs" 25 January 2012

Leading figures within insolvency launched staunch defences of the use of pre-pack administrations at the Commons Select Committee hearing.

Pre-packs have made mainstream headlines in recent weeks with the high-profile rescues of retailers La Senza and Blacks Leisure.

And critics have condemned the measures as a means of allowing previously failed businesses to resume trading debt-free and at the expense of their creditors.

But speaking at the enquiry – held by the Business, Innovation and Skills Committee – Frances Coulson, president of trade body R3, insisted research shows pre-packs produce a better return for creditors than a normal business sale, while preserving jobs.

She said: “Pre-packs are useful tools which do work within a large number of cases.

“People think the directors have walked away and got their business back while the creditors have been left high and dry.

“30% of GDP is made up of small family-run businesses and it’s fair to say they (pre-packs) are a valuable tool especially in the SME sector.

“Do we really want to take that tool away which can rescue jobs?”

And executive director of the ICAEW, Vernon Soare, reinforced the view pre-packs are key devices for ensuring job losses in administrations are minimised.

Soare added: “Pre-packs do actually assist greatly in maintaining employment.

“They are up to the judgment of the insolvency practitioner (IP) – they have to give their reasons for carrying out pre-pack in a statement to creditors.”

Meanwhile, Coulson also defended IP’s remuneration, but added they could do more to shed more light on how much they were going to be paid for jobs.

She said: “It’s quite a difficult process but practitioners will invariably give a detailed breakdown (of their remuneration) if they are challenged.

“But if the creditor has not engaged throughout the process and then says I’m unhappy with these funds and makes a complaint it may be unrepresentative.

“If 90% are happy what do you do with one that’s not happy?”

“It can be difficult to have estimates but IPs should know how much roughly a job should cost and tell creditors that.”

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