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Pre-pack legislation to remain unchanged 26 January 2012

Edward Davey MP has confirmed the Insolvency Service will take the ‘do nothing’ option having consulted on proposals to introduce new legislative measures on pre-pack administrations.

It follows a lengthy consultation which enraged many in the industry who claimed proposals to change legislation were ill-judged, notably the suggestion that creditors should have three day’s notice of a pre-pack administration.

The inference from the proposals was that the government believed a creditor would have the time to apply to court for an injunction during the proposed three day period.

However, Edward Davey MP today acknowledged that while concerns remained about the use of pre-pack sales, the merits of the current process outweighed the drawbacks of changing the regime.

He said: “BIS have discussed the merits and practical application of the proposed measures with a range of interested parties including secured and unsecured creditors, IPs and business representatives.

“Having taken account of all the issues, the government is not convinced that the benefit of new legislative controls presently outweighs the overall benefit to business of adhering to the moratorium on regulations affecting micro-business which is an important plant of this government’s deregulatory agenda

“Much of the concern was related to small businesses, I do not consider that measures should be introduced just for businesses other than micro-businesses.”

Frances Coulson, president of R3, said the proposed changes would have led to more businesses closing, job losses and unsecured creditors losing out as more businesses would have been liquidated instead of pre-packed.

She explained: ““We are pleased government has listened to the fact that improvements to the current pre-pack regime can be achieved through tweaks to the existing regulatory framework instead of additional regulatory burdens which would cause harm to businesses and their employees.

“R3 has been vocal about the effect these proposals would have on micro businesses and SMEs, which the Government has now recognised.

“R3 welcomes increased transparency and confidence in the pre-pack process and looks forward to working with Government to address creditor concerns surrounding pre-packs.”

Coulson reminded the government that pre-packs remain a vital rescue tool which fare considerably better than alternatives in terms of the retention of jobs and returns to secured and unsecured creditors.

She added: “This is crucial as the UK economy heads closer to another recession after the 0.2% decline in the UK’s economic output.

“We also urge the Government to define ‘admin expenses’ which would help save thousands of jobs and businesses that enter administration every year.

“R3 has long campaigned for the implementation of legislation to clarify an administration expense to improve the UK’s business rescue culture.”

More to follow…..



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