Government rules out changes to pre-pack legislation

The decision follows a consultation taking almost two years.

This morning minister for employment relations, consumers and postal affairs Ed Davey said extra legislation around pre-pack would go against the exisiting moratorium for micro businesses, which exempts businesses with fewer than ten people from regulatory burden.

Instead, Davey plans an “urgent” review of existing pre-pack controls, to be reviewed in the Spring.

He highlighted continuing concern of the effect of pre-pack sales on competitors in the market.

Davey added that ‘phoenix-ism’ - where pre-packs are used to sell assets to a connected party, prevalent usually among smaller business - was also an issue that needed to be tackled.

Draft legislation included the introduction of a three-day advance notice to creditors if administrators planned a pre-pack procedure.

Blacks Leisure and Bonmarché have all been rescued from administration through pre-pack deals in the past month.

But the British Property Federation (BPF), which had called for an extended notice period for a pre-pack deal, said the “anything less than swift action [from the Government] would be deeply unsatisfactory”.

BPF director of policy Ian Fletcher, said: “The Government has wasted 18 months reaching a conclusion that was obvious at the start of this process; that the policy being pursued would potentially breach the moratorium on regulations affecting micro-business.

“This decision leaves creditors as exposed to sharp practice as when this debate started 18 months ago. Whether by legislative or non-legislative means creditors now expect the Government to move swiftly to provide increased protection.”

However, administrator to both Blacks and Bonmarché, KPMG, welcomed Davey’s decision.

UK head of restructuring Richard Fleming said: “Without the pre-pack mechanism, it is likely that more stores would have had to close and more staff would have lost their jobs. 

“Importantly, the use of a pre-pack, rather than selling the businesses out of a trading administration, minimised the disruption to operations.

“At a time when many more businesses face collapse, today’s statement from the minister is an important acknowledgement of the role pre-packs have to play in the country’s corporate recovery.”

Law firm Pinsent Masonsrestructuring legal director Alastair Lomax said the focus should shift to preventing abuse of the process.